Impact-based forecasting for volcanic eruptions: science driving financial preparedness

More than a billion people live within 150 km of an active volcano, facing a variety of hazards such as ash fall, lava flows, and toxic gases that threaten lives, infrastructure, and livelihoods. Co-Existence with a volcano requires informed, prepared, and resilient societies capable of rebuilding.  

Volcanic crises impose severe decision-making challenges and enormous economic costs, often borne by governments and individuals. Yet, the insurance gap for eruptions remains close to 100%.  Alternative risk transfer solutions, that include parametric insurance structures and specifically catastrophe bonds, are innovative financial tools that can alleviate the financial impact of natural disasters. Unlike traditional insurance, parametric structures provide immediate payouts when predefined hazard severity thresholds are exceeded, enabling faster response and recovery. These thresholds and payout formulas are based on catastrophe models. While the structure is active, so-called “calculation agents” monitor the insured peril and calculate payouts for ongoing events. 

Mitiga Solutions has pioneered methodologies for parametric coverage of both explosive and effusive eruptions, building on the world’s first volcano catastrophe bond (2021-2024) for the Danish Red Cross. Our approach uses “modelled-loss triggers”, meaning payouts are based on near-real-time impact calculations. Impact-based forecasting not only supports insurers but also provides actionable intelligence for emergency managers and other decision-makers during a volcanic eruption. 

Inspired by this concept, the UNICORN project (EU Horizon Europe Programme grant agreement No 101180172) is developing a disaster management tool for lava flows at Etna volcano. Leveraging information from the volcano observatory, the tool will deliver concise, impact-focused reports with simulated lava inundation paths, updated satellite imagery, and modelled impact. By combining observatory data with impact-based forecasting, this tool aims to turn scientific insights into actionable strategies for both emergency response and financial resilience.