How hot temperatures fuel fungi growth and insurance losses

We see two main areas of new frontiers in fungi-associated loss potential. The first on account of fungi adapting to and thriving in warmer temperatures, including in humans and other warm-blooded animals. The second overuse of fungicides, leading to the development of more multi-drug-resistant fungal pathogens. Specialty insurers face elevated risks from crop losses and commodity disruptions, while property insurers may see more mould-related claims on account of flooding and damp conditions. Casualty lines are exposed to liability from product recall and environmental impairment due to inadequate containment or misuse of fungicides. In L&H, the spread of drug-resistant fungal infections potentially poses a growing risk to vulnerable populations.

To feed a growing world population, the green revolution of the 1960s promoted cultivation of fewer food crops and crop varieties on larger plots of land. ¹  This has led to the scenario in which key staples, cereals and root-crops have high genetic uniformity, which in turn has facilitated rapid spread of fungi. The response of overuse of fungicides in agriculture has only led to more virulent strains. ^2 3 Today, fungal diseases cause 10–23% of global harvest losses each year. The excessive use of fungicides in agriculture have resulted in the spread of more virulent strains to livestock and humans. There are already cases of multi-drug resistant fungi limiting the medical treatment options for those affected. While currently still on small scale, the development of anti-fungal resistance to drugs could contribute to higher mortality rates, perhaps more so during natural disasters and in the midst of other disease outbreaks. ^4 5 6 7

Source: Swiss Re SONAR

A first step to manage the risks inherent in the spread of fungi is to monitor new and multi-drug-resistant outbreaks in agriculture and humans, in order to reduce vulnerabilities in the first place. This should include the impacted targets and the identification of pathways by which fungi distribute. To facilitate such monitoring and guide related research, the World Health Organization (WHO) has published a “fungal priority pathogens list” (FPPL) to systematically list fungal pathogens of perceived public health importance. ⁸  Second, containment procedures to minimise spread are needed. Border controls of goods and people may be necessary, depending on the fungi concerned. At the same time, workers in the agriculture, construction and healthcare sectors should be trained to spot signs of fungal infection early on and to take relevant actions. Many incidents of fungal infection are discovered too late or not at all, leading to larger losses than would otherwise be the case. ⁹ In agriculture specifically, biodiversity and the inclusion of certain plants or crops can help prevent the spread of infections without needing fungicides, keeping crops uncontaminated from chemicals. ¹⁰

All such new tools must be used sparingly and appropriately to fend off the development of new multi-drug resistant fungi, this calling for cross-functional risk management in all areas of application. Currently agricultural, construction and healthcare applications are approved and managed by different regulatory bodies. To avoid resistance development in one area of application spilling into another environment, a common approach is needed. ¹¹  In their risk assessment, insurers should remain cognizant that, in a world where international collaboration is declining and state budgets are shrinking, a global response to fungal spread may not be forthcoming and at the very least be inadequate. And in this environment, it could be that insurers shoulder a higher claims load. ¹² 

A toxic mould crisis in the US reshaped parts of P&C underwriting, similar to the impacts of asbestos and lead paint in earlier decades. It highlighted the industry’s vulnerability to emerging environmental and indoor air quality risks, and reinforced the importance of clearly defined policy language. Toxic mould as an exposure began to significantly impact the insurance industry in around the late 1990s and early 2000s. There was a surge in mould-related claims, particularly in states like Texas and California. High-profile lawsuits, such as the 2001 case where a Texas jury awarded USD 32.1 million to a family in a mould-related lawsuit, highlighted the financial risks associated with mould claims. ¹³  In response, insurers began to exclude or limit mould coverage in standard homeowners’ policies. For the long term, mould coverage became a niche or add-on product with limited coverage. The market stabilised as exclusions and limitations for mould coverage became standardised, and consumer awareness grew. By 2003, insurance departments in around 40 US states had approved mould exclusions and/or limitations on homeowners’ insurance policies. Insurers promoted timely repairs of water intrusions to mitigate mould growth.

Specialty: Fungi can destroy agricultural products. ¹⁴  In warmer climes, mould becomes more prevalent in crops, including in new geographies. The spread into new environments also opens new pathways for distribution, for instance by enabling spread of spores via air and water to new geographies and hosts in which fungi can survive. ¹⁵ Fungal infection can have severe impact on crop yields, the result of which could be food shortages and higher food prices. This could spark social, macro and geopolitical uncertainties. Economic slowdown could reduce insurance demand, while uncertainties can fuel market volatility, complicating the role of asset managers (including insurers).

Agriculture is not about food alone. Mould can also impact non-food commodities like latex, which are used in a wide range of products from tires to medical gloves. There have been cases where newly emerging plant diseases have hampered growth of plantation crops and reduced yields. ¹⁶ The supply chain ramifications of a severe outbreak of new diseases are many. For instance, a shortage of supply of natural latex could spark significant business interruption losses.

Casualty: Over- or improper use of fungicides and/or failure to action procedures to contain fungal spread could increase product recall, environmental liability and/or professional indemnity claims. This is in cases where mould and the development of multi-drug resistant fungal strains lead to property damage, bodily injury and subsequent financial loss, and where precautions taken by producers and distributors are deemed to have been insufficient. Insurance covers for product recall are available if producers meet certain risk management criteria. ¹⁷  In addition, overuse of fungicides can lead to accumulation of fungicides in soil and water. This could potentially generate environmental impairment liability and workers’ compensation claims should employees fall ill on account of contact with drug-resistant strains of fungi.

Property: One outcome of warming climates could be more severe and frequent flood and storm surge events, including in areas not previously impacted. Water and damp conditions in buildings fosters growth of toxic mould, even more so in warmer temperatures. As more areas become susceptible to flooding and dampness, so too will more properties (private and commercial) be vulnerable to mould. This could lead to an increase in claims for damages caused by mould. And if mould contaminations related to natural perils are covered, claims severity could increase in more geographies.

L&H: Fungi are adapting to higher temperatures, including in humans and other warmblooded animals. ¹⁸  In clinical settings, incomplete treatment cycles for fungal infections can promote the development of multi-drug-resistant fungal pathogens. ^19 20 There have already been cases of multi-drug-resistant fungi limiting medical treatment options for patients. While currently still on small scale, the development of anti-fungal resistance to drugs could contribute to higher mortality rates, perhaps more so during natural disasters and in the midst of other disease outbreaks. ^{21 22 23 24} This mirrors the trajectory seen with drug-resistant bacteria, where over-prescription, antibiotic misuse and incomplete treatment cycles have led to widespread resistance and a growing public health crisis. However, anti-fungal resistance is still at a much earlier stage, offering a crucial window to intervene and prevent a similar health threat. Fungi could also be a contributory factor behind increased L&H claims in periods of acute health crises, as evidenced by reports during the COVID-19 pandemic that fungal infections increased the morbidity and the death rate among immuno-compromised patients. ²⁵  This coincides with indications that the average temperature of the human body decreases 0.03⁰ C per birth decade. ^26 27 Given that fungi are adapting to warming temperatures, it could be that fungi are better able to survive in humans, perhaps more so in persons with pre-existing conditions.²⁸