Lifting the lid on volcanic risk

The threat is closer than we think. With around 1,500 active volcanoes on land with the potential to erupt, and approximately 1 billion people living within 100 miles of a volcano^[1], the risk is very real. And we may not yet be aware of the locations of all the dangerous volcanoes around the world due to limited data recordings^[2].  If an eruption is severe enough, it can destroy homes, livelihoods and inflict significant casualties. The International Association of Volcanology and the Chemistry of the Earth's Interior (IAVCEI) has named 16 ‘Decade Volcanoes’ as the ones which present the most immediate threat^[3]. 

^{[1] https://www.swissre.com/risk-knowledge/mitigating-climate-risk/volcanoes.html}   

^{[2] Risk of a Catastrophic Volcano Eruption Is Startlingly High – And the World Is “Woefully Unprepared” (scitechdaily.com)}

^{[3] https://www.worldatlas.com/articles/the-16-dangerous-decade-volcanoes.html}  

With some of these ‘Decade Volcanoes’ situated near population centres like Seattle, Metro Manila and Naples, the event of their eruption would have far-reaching impacts, triggering second and major third-order effects and firmly positioning a serious eruption as a systemic risk. Dormant volcanoes near major cities need to be considered too but present a significantly lower risk to the global economy. Iceland’s Reykjanes Peninsula had been dormant for ~800 years until Fagradalsfjall volcano erupted in 2021 and continued to have a series of eruptions over the last 3 years, with Iceland declaring a “state of emergency” over fears of the risk and damage of a major eruption. While these fears thankfully have not materialised, the Fagradalsfjall event serves as a stark reminder that we should be prepared for volcanic eruption to disrupt the status quo at any time.

Lloyd’s is committed to help build preparedness and resilience around the potentially catastrophic systemic consequences of volcanic risk.

In the wake of a natural catastrophe, insurance can be a financial lifeline. Our products and expertise help people and businesses recover by providing economic protection and enabling the mobilisation of emergency response resources.

Insurance acts as society’s financial safety net, providing a backstop against financial loss for countless risks worldwide and providing guidance and expertise to help customers understand their vulnerabilities and strengthen their resilience.

Insurance mitigates the cost of physical damage to buildings and infrastructure, and it also has a significant role to play in protecting businesses from many secondary impacts that can arise from the damage and disruption. While the full impact of a systemic event would be too great for any single sector to bear, insurance can work alongside private and public sector partners to protect against risks that could arise in the aftermath of a volcanic eruption, such as:

A volcanic eruption has much wider and longer-lasting impacts than Hollywood films would suggest. There is significant risk on all levels – human, environmental, economic – in the immediate proximity and aftermath of an eruption.

Many of the Earth’s 1,500 active volcanoes are in remote locations, but what should happen if one of the ‘Decade Volcanoes’, situated near modern, densely populated urban centres, erupts? The immediate vicinity could be buried by ash or destroyed by pyroclastic flows, volcanic bombs, lava or lahar flows, resulting in the loss of property, livelihoods and lives. The impacts could eventually be felt around the world as the physical and economic effects spread, leading to a long period of recovery and restoration. 

Eruption

With little to no warning, one of the 16 Decade Volcanoes identified by the IAVCEI erupts. Hot gases, lava and volcanic matter are ejected from the volcano for over 48 hours, and many other harmful chemicals are now airborne. A 30km high ejecta column sends ash and tephra deposits into the atmosphere and these scatter across the surrounding area, some rising high enough to hit the stratosphere.

Timeframe: 1-2 days

Lives and homes lost

Loss of life and property is reported in the immediate areas due to lahar flow, ash inhalation, flood, landslide, and related health complications. Many people are forced to evacuate, some fleeing on foot to safer ground in the immediate aftermath. The impact of the destruction could continue for months – or longer - depending on progress of debris removal, asset recovery and infrastructure rebuilds.

Timeframe: 1-2 days (initial impact)

Travel and transport shut down

Due to ash impacting visibility and mechanical functions, all airports and seaports in the affected areas are forced to shut – airspace is temporarily closed to minimise impact to human life. Disruption to travel and transport lasts several days, with continuing disruption to supply chains and key services extending for months.

Timeframe: 1-2 months

Adverse seasonal weather events

Ash and tephra that reached the stratosphere causes ‘radiative forcing’, the effect of volcanic aerosols and clouds absorbing radiation from the sun, lasting for two to three years. In the most severe scenario, this radiative forcing means that global temperatures cool because of the eruption, contributing to seasonal changes that can affect crops and contribute to a concentrated period of substantial food instability globally.

Timeframe: 2-3 years

Scenario effects

The economic impacts of this volcanic eruption scenario stem primarily from transport disruption, the expense of property damage and asset recovery, and the environmental disruption caused by the vast amounts of volcanic ash produced. The latter has particularly heavy impact on industrial and telecommunication sectors.

While direct impacts like major business interruption, environmental damage, property loss, loss of life all have significant implications for society, there is also likely to be indirect disruptions to supply chains, critical infrastructure, and workforce availability. Other longer-term impacts could include damage to productivity and consumer confidence (e.g., holidaymakers may avoid visiting recently affected areas).

In the most severe level of the scenario, there is a sustained presence of volcanic aerosols and clouds in the atmosphere, which absorb and reflect heat from the sun. This “radiative forcing” lasts for two to three years and means that global temperatures cool (commonly known as a “volcanic winter”), triggering an increase in extreme weather and reductions in food yields and substantial food instability. As the volcanic winter sets in, political tensions could rise as countries vie for resources and the exacerbation of existing geopolitical tensions, or even a military conflict between regional powers, would aggravate the shock across global supply chains.