Commissioner Lara releases pioneering analysis on hidden costs of extreme heat in California — First-of-its-kind report reveals $7.7 billion in losses from extreme heat events

Insurance Commissioner Ricardo Lara unveiled a comprehensive analysis titled “Impacts of Extreme Heat to California’s People, Infrastructure, and Economy.”

This first-of-its-kind report, the result of legislation that Lara sponsored in 2022, meticulously quantifies the uninsured and insured costs of seven recent extreme heat events across the state, highlighting the urgent need for adaptive strategies to mitigate the growing threat of extreme heat.

California Insurance Commissioner Ricardo Lara.

“Extreme heat is a silent, escalating disaster that threatens our health, economy, and way of life in California,” Lara said. “This report brings to light the staggering hidden costs of extreme heat events, underscoring the urgency of our efforts to create a groundbreaking heat wave ranking and early warning system statewide. We must prioritize resilience-building efforts and innovative insurance solutions to safeguard our state against the growing impacts and financial risks of extreme heat.”

This analysis creates a framework to measure the true costs of seven significant extreme heat events over the past decade, providing a detailed analysis of the financial and human tolls they exacted on our communities. The full spectrum of costs is likely much deeper than the report’s preliminary estimates. Some kinds of insurance are available to cover costs connected to extreme heat such as health coverage, workers’ compensation insurance, and crop insurance. However, the report exposes significant gaps in traditional insurance coverage for heat-related losses and calls for the development of innovative insurance mechanisms and investments in adaptation and resilience.

Key findings of the report include:

  • The preliminary estimates on the cumulative cost of the seven studied heat events amounted to  $7.7 billion, affecting nearly the entire population of California.
  • Adverse health outcomes disproportionately impacted Black, Hispanic, and Native American communities, with significant mortality rates among older adults and heat-related illnesses among younger populations.
  • Labor productivity losses ranged between $7.7 million and $210 million per event due to extreme heat, with substantial uninsured wage losses.
  • Power outages during heat events resulted in substantial economic impacts, with the 2022 Coastal Inland event incurring the highest costs at $230 million.

Infrastructure costs due to heat-related damage repair and delays ranged from $3.8 million to $35 million per event, predominantly affecting roads and rails.

“Extreme heat disproportionately affects low-income and communities of color, exacerbating existing inequities,” said Sona Mohnot, Director of Climate Resilience at The Greenlining Institute. “This report underscores the critical need for equitable adaptation measures that prioritize the health and safety of our most vulnerable neighbors. Together, we can develop sustainable solutions that protect everyone.”

The data showcases the far-reaching consequences of extreme heat events, from increased mortality rates and adverse health outcomes to substantial economic losses across various sectors. Notably, current losses are largely not covered by insurance, placing the burden on individuals and public entities.

“The data presented in this report is a wake-up call that we need immediate measures to protect lives,” said Kathy Baughman McLeod, CEO at Climate Resilience for All and member of the California Climate Insurance Working Group. “The far-reaching consequences of extreme heat require coordinated action across all sectors to accelerate equitable adaptation. We must integrate climate-smart measures into our planning and invest in strategies that enhance our communities’ resilience to withstand future heat events.”

The report emphasizes the need for a multi-pronged approach to address the challenges posed by extreme heat. Key recommendations include:

  • Making the most of existing resilience funding to bolster infrastructure and healthcare systems.
  • Collaborating across public and private sectors to develop and implement heat-illness reduction strategies.
  • Exploring innovative insurance solutions to incentivize extreme heat resilience and cover business interruptions, infrastructure damage, and emergency services during extreme heat events.
  • Use insights from local government case studies to inform future state and local planning and mitigation policies.

“As climate change intensifies, the costs of extreme heat on our health, lives, and economy are growing,” said Katelyn Roedner Sutter, California State Director at Environmental Defense Fund. “It’s absolutely critical for California to monitor and reveal the enormity of otherwise hidden costs. Anyone who says California cannot afford climate action should flip through this report to learn why doing nothing is not an option. Extreme heat, by itself, is costing Californians billions of dollars. Since most of these costs aren’t covered by insurance, our small businesses and working families on a budget are at the greatest risk. In order to build a safer and more prosperous future, California must double-down on proven solutions to reduce the intensity of heat in our communities, such as expanding urban tree canopies and access to green spaces.”

Lara’s groundbreaking report underscores the urgency of immediate and coordinated action to mitigate the devastating impacts of extreme heat on California’s people, infrastructure, and economy.

“This important and innovative report documents the huge scale of the financial and social impacts from extreme heat in California and reveals the major gaps in insurance needs for the economy,” said Louis Blumberg, member of the California Climate Insurance Working Group. “With these new multi-sector cost data, the report challenges officials at all levels to increase efforts to protect residents from the ever-increasing threat to public health and safety, especially low income and communities of color. The common sense recommendations establish a clear platform for more research, innovation and action.”

“Greening our communities means more shade in our neighborhoods, reducing the impacts from extreme heat events and saving lives,” said Mike Lynes, Director of Policy for Audubon California. “Investments in our urban forests mean more trees, parks, and greenways — beautifying neighborhoods, offering more outdoor recreational opportunities, and providing much-needed habitat for birds.”

“A hot day is not just an inconvenience – for hundreds of thousands of Californians, extreme heat is a matter of life and death,” said Jonathan Parfrey, Executive Director of Climate Resolve, “Commissioner Lara’s breakthrough study, ‘Impacts of Extreme Heat to California’s People, Infrastructure, and Economy,’ quantifies for the first time the cost of past heat waves. The study’s admittedly conservative estimates are nonetheless staggering. Losses in labor productivity alone should serve as a wake-up call for industry and policymakers. The lesson is this: investing in cooling solutions today will save money and lives tomorrow.”

“This report not only sheds light on the devastating human health and economic impacts of extreme heat in California,” said Nuin-Tara Key, Senior Advisor and Strategic Consultant at Key Strategies. “It also provides first-of-its-kind insights into solutions that both close the protection gap for people most vulnerable to extreme heat and drive investment in resilience that reduce costs and saves lives.”

Lara encourages all stakeholders to review the findings and recommendations in this report to foster greater cross-sector collaboration and drive forward-thinking solutions that will safeguard our state for generations to come.