Insurers and loss adjusters are using digital technologies to handle this autumn’s surge in subsidence claims but they are not forgetting the human touch is the best way to get to the root of the problem
This summer was the hottest on record for England. While this gave many people sunny memories, the lasting impression for insurers might be cloudier, as subsidence claims are set to send costs soaring.
Occurring where clay soil shrinks through lack of moisture and where tree roots expand under foundations in search of water, subsidence causes cracks in buildings.
In late August, Sedgwick reported a 350% rise in subsidence claims over the previous six weeks. Garry Simmons, head of high net worth and commercial claims for Covéa, supports this and says this is the first real surge in subsidence claims since 2006. Volumes increased significantly in August and continued throughout September, he says. “Our initial view is that reserves on true subsidence claims will increase by 35%. Commercial subsidence claims are now also rising, but as there are a greater number of third parties involved in commercial insurance, notifications can take longer to flow through.”
Covéa is expecting 2018 claims to be roughly double those experienced in 2017. However, “they will be much lower than the surges of 2003 and 2006,” says Simmons.
An expected surge
Martin Ashfield, claims technical director at Axa, says wet weather should stop the surge: “We expect claims volumes to remain high in September and October. However, the number of new claims should start to level out. We’re also beginning to see more rain across the UK, which will improve soil moisture and reduce claims numbers.”
But there are questions about whether the sector can handle this surge after a period of lower claims. “I’ve worked in claims for 30 years and, during recent years, subsidence claims have become the forgotten peril to a large proportion of underwriting and pricing staff,” says Simmons. “A large number of highly experienced engineers and technicians have exited the profession as resources have been reduced to match the lower demand.”
Sedgwick head of subsidence Kevin Williams says the loss adjuster operates a flexible model to be able to deploy people quickly in times of surge.
As the expert workforce has shrunk, technology is being called on to fill the gap. “We’ve kept close to our subsidence suppliers during ‘peace time’ to understand their surge plans and how their investment in technology can be used to compensate for the reduced number of people in the sector,” Simmons says. “The recent uplift in claims will result in real pressure on areas of the supply chain and those firms that have invested in technology must stand the best chance of overcoming the challenge.
“One example is their ability to use desk-based chartered engineers to link with customers through their own smart devices, allowing for faster assessment of damage. In addition, deploying remote crack monitoring utilising mobile signalling is also a huge step forward from the days of sending out technicians to manually measure the distance between monitoring studs.”
To fell or not to fell?
A majority of adjusters will say that removing a tree is most often the answer to a subsidence issue.
Martin Holmes, partner at DAC Beachcroft, explains: “Removing a tree is often the most straightforward and effective solution. It should stop the problem, meaning that the customer can have their property repaired.” But for local authorities, this can be hugely problematic, as trees in public areas are such valued resources.
Paul Dixon, claims relationship manager at Zurich Municipal, notes: “A knee-jerk reaction of felling the tree needs to be avoided and all options considered carefully.”
Holmes agrees: “If a tree has a high amenity value – say put at around £500,000 and underpinning comes in at £100,000 – then the latter will be the route taken.”
However, Sne Patel, head of subsidence for Crawford, comments: “I’ve dealt with those who don’t want trees removed. But also, if your home is affected, then this is the best way to deal with it. And it should be remembered that even when there is a protection order, the tree can still be removed if an application is approved.
“The problem with measures like pollarding is that they are not always effective. And what happens when a neighbour who agrees to this then moves on? If the work is not done regularly, subsidence could return.”
Jasper Fulford-Dobson, a tree consultant, calls for a measured response: “Insurers should make sure there is a proper investigation and that there is a process of elimination to discover if subsidence is the cause or if there are other reasons. I’m aware of occasions where sweeping judgements have been made and a tree was felled unnecessarily.”
He continues: “There is now far more awareness of the health benefits trees bring, such as with respiratory diseases. No one wants to see wholesale felling of trees. But too often, this is pushed on claimants as it’s the cheapest option. I’d like to see more opt for a maintenance solution.”
Tree management can work: root barriers can be installed or the tree can be reduced in size. But this work may need to be carried out on a regular basis.
Fulford-Dobson adds: “Being environmentally responsible is a matter for insurers too. There are going to be cases where tree roots are encroaching on buildings, but too often a speedy removal is sought.
“If we see more claims and an insistence you should not have trees within 30m of a building in a clay soil area, we will end up seeing wholesale felling. The tree population in some areas would be decimated and you would be left with greater health problems and a worse urban landscape.
“Now is the time to look at alternative strategies.”
Martin Holmes, partner with DAC Beachcroft, says progress has been made in dealing with subsidence claims in domestic property, despite a brain drain. “Because of the gap in years, some of the knowledge has gone out of the sector as people have left or moved into other areas and now we are in an event year.” Advances like digital monitoring have led to some efficiency, he says, but ‘seasonal indicators’ remain important gauges in identifying subsidence as the cause of cracking.
Subsidence claims can be extremely complex. Ashfield says: “Technical and processing abilities are essential, but so are customer service skills, as these claims often involve long periods of monitoring and investigation and, therefore, can be stressful for homeowners.
“A joined-up approach is ideal in terms of the insurer, adjusters, engineers and customer service teams, especially when determining the cause of damage and the most appropriate solution. However, often third parties are involved and may even have contributed to the issue, which can cause friction as well as delays until liability is confirmed.”
Williams highlights that it can be difficult in some cases to ascertain causation. Investigations require many tests and involve several parties such as engineers, arborists and lawyers. The ideal scenario for an insurer is where the offending tree is on the policyholder’s property and there is agreement to remove it swiftly.
When it is a local authority or neighbour’s tree, claims become drawn out and evidence needs to be obtained, typically through long-term monitoring. Technological advances can help, however, and Williams says cracks can be monitored remotely, with data being fed back every eight hours.
Heather Ford, partner with Keoghs, adds: “These claims take a lot of managing. It means appointing the right specialist in every area, such as structural engineers and soil experts. And there are times when even a year’s worth of monitoring is not enough.”
“These are always going to be expensive claims for insurers because of the time taken,” Holmes says. “With so much clay soil in London, where you have such high property values, some run into millions of pounds.”
No wonder then that liability isn’t always accepted. When it becomes problematic, insurers need to appoint lawyers.
For the insured, clearly it can be extremely frustrating if they are waiting for their claim to be agreed. Ashfield backs the Association of British Insurers’ domestic subsidence claims agreement, which sets out guidelines for timescales and settlements as it helps improve communication between insurers when determining which company should cover the cost of the claim and can help policyholders understand the process.
Ford says hold-ups occur when neighbours refuse to have a tree removed or when a tree is subject to a protection order. Claims can also be subrogated, with insurers seeking to recoup proceeds from a third party.
Meanwhile, she explains the Berent v Family Mosaic Housing and Islington Council case from 2012 piled on further pressure for insurers. “This turned existing case law on its head and relates to reasonable foreseeability. As a result of this, recoveries are far from easy.”
In this case, the Court of Appeal said it would have been unreasonable to require trees be removed from an Islington street on a purely precautionary basis, before their roots caused any damage.
Paul Dixon, claims relationship manager at Zurich Municipal, which provides cover for local authorities, comments: “The case of Berent made it clear that a local authority would only be liable where there was a ‘real risk’ of damage and it was not enough simply to say that there was a tree in close proximity.”
Even so, Dixon explains the claims with the highest success rate for defending are those where the local authority operates “a proactive risk-based approach to tree management”. He says councils can benefit if they “record reports of damage so that hotspots for tree root claims can be identified”.
He says prior to Berent, it was relatively straightforward for a third party to prove that it was foreseeable to a local authority that a tree was likely to cause damage if preventive measures were not taken. “Berent assists local authorities as the Court of Appeal confirmed that tree root claims were no different to other claims insofar as foreseeability was concerned. But it confirms that once the local authority is on notice, it has a duty to prevent further damage through careful tree management.”
Some properties suffering from subsidence require underpinning. The process providing structural support has long had a stigma attached to it, but Holmes says this is changing. “Providing the work has been done well, it makes the property more robust and there should be little impact on market value. It’s still possible to obtain mortgages and insurance.” Even so, there remains a perception that underpinning is undesirable.
However, Patrick Clark, head of surveying and field services at Davies Group, says piling offers another solution, with post-like structures strengthening foundations. “Customers receive certification which provides them with reassurance going forward but it’s expensive. There are occasions where you see claims when one of these solutions has been done to part of the property – which was a more common technique in the past – but it has caused stability issues later on.”
In times of subsidence surge, loss adjusters need to shore up resources. Clark explains a human-touch approach can quicken resolution. “We ramped up teams from July, and there is a real benefit for insurers in having an adjuster with subsidence expertise.
“You also need to be able to manage some of these claims with considerable sensitivity from the onset, particularly if there are difficulties with a neighbour. I’ve worked on cases where a knock on the door and an attempt to bring parties together, if there are difficulties with a tree, will bring about a relatively quick resolution.”
Certainly with subsidence claims mounting up, insurers will need every ounce of help they can get in making sure they see through this onslaught – and they will no doubt be hoping that 2019 is far less of a scorcher. Either way, with more technology and data at their fingertips than in the previous surge years, insurers may want to review their books and their underwriting strategies for this costly claims area.
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