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Lifting the lid on volcanic risk

How a volcanic eruption could cast a cloud over global economies

Molten lava rivers, ash cloud, volcanic bombs… to many nations around the world volcanic eruptions can seem like the stuff of disaster fiction. That is, until the heat is on the global economy to withstand the pressure on its supply chains. Aviation, tourism, and telecoms - just a few industries that could face significant disruption in the event of a volcanic eruption.

Volcanic eruption

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]


[2] Risk of a Catastrophic Volcano Eruption Is Startlingly High – And the World Is “Woefully Unprepared” (


The sixteen decade volcanoes and their last known eruption: Mount Rainier – 1450, Muana Loa – 2022, Santa Maria – 2024, Galeras – 2014, Colima – 2017, Vesuvius – 1944, Mt. Etna – 2024, Santorini – 1950, Teide – 1909, Mt. Nyiragongo, Merapi – 2024, Avachinsky-Koryaksky – 2009, Mt. Unzen – 1996, Sakurajima – 2024. Taal – 2024, Ulawun - 2023.

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.

The value of insurance

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:

Aviation insurance

Volcanic ash clouds have the potential to create significant travel disruption. During the 2010 eruption of Eyjafjallajökull, UK and parts of European airspace were contaminated by ash resulting in the cancellation of over 100,000 flights. Aviation insurance provides protection across the sector (e.g. airline operators, service providers, airports) and can include cover for loss of income following a catastrophic event such as a volcanic eruption.

Agriculture insurance

Livestock mortality and crop failure is possible in large eruptions due to ash coverage or climatic temperature alterations. Livestock and crop insurance can compensate damage to or destruction of farmers’ stock, business continuity costs, and create access to credit facilities to support risk mitigation.

Emergency response

Lloyd’s Disaster Risk Facility has supported a tailored risk transfer mechanism for the International Federation of Red Cross and Red Crescent Societies (IFRC)’s Disaster Response Emergency Fund (DREF) to ensure that funding is available to support life-saving assistance in vulnerable communities experiencing all kinds of disasters. The Danish Red Cross have sponsored a parametric Volcanic Cat Bond which covers 10 volcanoes around the world, all with at least 700,000 people living within a 60-mile radius, and releases emergency disaster relief funding if triggered.

Picture the scene: A volcano erupts

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. 


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

The severity of events and impact

We have explored three potential levels of severity for this scenario, to illustrate the potential range of impacts.

LevelScenario severity descriptionsHistorical reference
Major Volcanic eruption 5cm ash layer: Ash cloud covers local area to 5cm depth, resulting in a lengthy recovery.
2010 Eyjafjallajökull eruption
SevereVolcanic eruption 1 meter ash layer: Ash cloud covers local area to a deeper 1m depth, resulting in a more complex recovery – potentially with longer timeframe.
79 CE Pompeii eruption
ExtremeVolcanic winter: A caldera creating explosion contributes to a 2 meter ash coverage. This is followed by a volcanic winter, which contributes to increased rainfall, flooding, and crop failures. The recovery time is considerable, with potential long-term impacts on global temperatures.
1815 Mount Tambora eruption

Historical references

The scenario has been informed by an analysis of historical events, including:

  • 1991, eruption of Mount Pinatubo, Philippines: The eruption of this stratovolcano, formed of many layers of hardened lava and tephra, cooled global temperatures by up to 0.5°C at the surface and 0.6°C in the lowest layers of the atmosphere, lasting a couple years.
  • 2010, eruption of Eyjafjallajökull, Iceland: The largest air traffic shut down since World War II. Led to the cessation of all air travel in Western and northern Europe for eight days, with intermittent shutdowns continuing elsewhere and after the initial eruption period. Millions of passengers were stranded worldwide. A total cost of more than $1.7 billion for the global airline industry. Additional industries were affected by health concerns regarding ashfall and delayed shipments.
  • 2010, eruption of Mount Merapi, Indonesia: The largest seismic period since the 1870s lasted more than a month and saw the evacuation of more than 350,000 people from around the Asia Pacific. Aviation in the region was significantly disrupted, with airlines forced to navigate around the ash cloud.
  • 2021, eruption of La Soufrière, Saint Vincent and the Grenadines: The explosive eruption of a stratovolcano that had been dormant since 1979 led to the evacuation of Saint Vincent and the lockdown of many neighbouring islands.
  • 2022 eruption of Hunga, Tonga: The eruption of an underwater volcano close to Tonga, hundreds of times more powerful than the atomic bomb dropped on Hiroshima during World War Two[4], led to tsunamis across the Pacific and widespread emission of volcanic gasses and ashfall. The eruption damaged property and the fibre-optic undersea cable that connects Tonga to Fiji, causing a five-week internet outage[5].



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.

Explore the impact of volcanic eruption

The economic impact

How vulnerable could the economy be to a major volcanic eruption?

The role of insurance

How can insurance help build resilience against the devasting impacts of natural perils like volcanic eruptions?

Additional insight from the scenario

For additional insight on the effects of volcanic eruptions.


This report has been produced by Lloyd's Futureset and Cambridge Centre for Risk Studies for general information purposes only. 

While care has been taken in gathering the data and preparing the report Lloyd's and Cambridge Centre for Risk Studies do not, severally or jointly, make any representations or warranties on behalf of themselves or others as to its accuracy or completeness and expressly exclude to the maximum extent permitted by law all those that might otherwise be implied.

Lloyd's and Cambridge Centre for Risk Studies accept no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

Note that this report does not seek to replace or inform any of the mandatory scenarios which Lloyd’s publishes to support the Realistic Disaster Scenario exercises managing agents are required to undertake in respect of the syndicates managed by them.