Intelligence: Tackling subsidence surges in a climate change era

Flats on brick_subsidence_for CMS

With hot summers becoming more likely in the future, subsidence surge and event years may be the new norm. Fiona Nicolson looks at how insurers are preparing for these claims in a climate change environment.

The great British summer is often described a washout, but this year’s record-breaking heat changed all that – perhaps forever. The temperature breached 40 degrees for the first time and so far, 2022 is the UK’s warmest year on record, according to the Met Office. But despite the sunshine, there was also a dark cloud hanging over homeowners – and the insurance sector.

Data analysis from software and technology company Dye & Durham, in June, found that more than 7.65 million properties in England and Wales could be exposed to high or medium risk of soil subsidence by the 2080s.

The company’s head of science, Dr Tim Farewell says: “Our data indicates that over the coming decades, we will see even more hotter, drier summers as a result of our changing climate. These conditions are likely to result in an increase in the severity and frequency of climate-related impacts to our homes.”

This risk is getting closer: weather-risk-management services provider, Euro Tempest’s annual subsidence risk-assessment report, published in August, forecasts that “unusually high subsidence impacts are likely in the next few months”. There will be an impact on the insurance sector, as where there is subsidence, there are claims.

Matthew Kirk, lead lawyer of Keoghs’ subsidence and tree-mitigation team, says: “Insurers and practitioners across the sector will have to brace themselves for increased claims in future, due to the impact of climate change. I spoke to one prominent insurer recently, which said that summer used to be a period of respite for its claims team from the storms and floods of winter. However, in the past few years it has been hit by increased subsidence claims in the summer.”

Therefore, claims teams will likely need to adjust. “Climate-change predictions show that what we consider an especially hot summer now will be an average summer by 2050. Therefore, what we consider a surge year now may be considered an average year in the decades to come,” Kirk adds.

We experienced an event year in 2018, resulting in more than 10,000 households making claims worth £64m within a three-month period. My expectation is that 2022 will see as many – if not more – claims relating to damage from soil subsidence, and so it is on track to be another event year.” 
Tim Farewell

And Farewell anticipates 2022 will be a surge year: “I believe the heatwave of 2022 will have a profound impact on the insurance sector. We experienced an event year in 2018, which had a hot and dry summer, resulting in more than 10,000 households making claims worth £64m within a three-month period. My expectation is that 2022 will see as many – if not more – claims relating to damage from soil subsidence, so it is on track to be another event year.”

Evidence of this forecast is already emerging: LV reports a 205% rise in subsidence cases between June and July this year alone, and Sedgwick said it expected claims to increase between 300% and 400% for August, which will potentially exceed the last surge event in 2018.

This could be expensive for insurers – and their customers, as Mark Varley, co-founder and chief executive of geocoding specialists, Addresscloud, points out: “If the number of properties at risk increases, as Dye & Durham predicts, insurers may need to increase premiums. However, this predicted increase does not account for new builds during this time that may also be built in areas with a subsidence risk.

“Add to that, the fact that claims costs are rising steeply as labour and materials become increasingly costly, and insurers could be facing a perfect storm of increasing numbers and costs which will be passed on to customers.”

Previously, many customers making the claims were based in the South East of England, according to Gary Dalton, senior claims technician at Zurich Insurance: “Typically, higher-risk areas are built on clay soil, which are predominantly in London and the South East of England. These areas are also more prone to subsidence due to the tendency for a warmer, drier climate. However, climate change means more properties beyond the South East could also be at risk if global warming drives hotter, drier summers.”

Typically, higher-risk areas are built on clay soil, which are predominantly in London and the South East of England. However, climate change means more properties beyond the South East could also be at risk if global warming drives hotter, drier summers.”
Gary Dalton

There are indications that the subsidence risk could increase as well as spread. The Dye & Durham data reveals that parts of Middlesex, Hampshire, Berkshire, Hertfordshire and Surrey could move into the highest subsidence-hazard classes by the 2050s.

It also indicates that six counties could see more than 50% of their area become exposed to high, or very high, soil-subsidence risk within three decades, including Huntingdonshire, Essex, Middlesex, Bedfordshire, Leicestershire and Northamptonshire.

Kirk is already seeing signs – from a legal perspective – of subsidence spreading: “We have seen an increased number of instructions in different areas of the country over the past few years, including an increased number of claims in Yorkshire and the North East. I have recently also seen claims in places such as Cumbria and Wigan.”

Some properties could escape the problem, though, regardless of location: “Just because a property sits in a high-risk area, it does not mean it will necessarily suffer damage,” says Dalton: “Older properties, for example, and lightweight structures like porches, are likely to have shallower foundations and, therefore, will be more susceptible to movement.”

Too hot to handle?

The claims sector has had a reprieve from a high volume of subsidence claims, with the last surge events taking place in 2018 and 2003. But with the potential for a ‘new norm’ already emerging, it will have to be ready to handle a higher volume of subsidence claims – and ensure there are still enough skilled people in the sector for current and future requirements.

Kevin Williams, head of subsidence and valuations at Sedgwick, explains: “Loss adjusters have surge plans in place that allow them to manage any increase in claims over the summer months. They have also built supply chains to ensure that capacity exists across the whole claim journey.”

Williams adds: “Following the 2018 surge event, the market has grown again. Our subsidence team has increased from 68 in 2018 to more than 170 in 2022. If 2022 results in a surge year, then we and the sector are in a better place to respond.”

Patrick Clark, head of surveying and field services at Davies Group, also believes the sector has the skills and capacity to handle an upturn in claims, and explains: “In 2018, a lot of experience had left the subsidence arena, but over the past four years, companies have recruited from outside the insurance sector, and trained graduates, surveyors and engineers on subsidence.  I would suggest that companies are in a better position to deal with the volumes of claims at present than before the previous surge.”

In 2018, a lot of experience had left the subsidence arena, but over the past four years, companies have recruited from outside the insurance sector, and trained graduates, surveyors and engineers on subsidence.  I would suggest that companies are in a better position to deal with the volumes of claims at present than before the previous surge.”

Patrick Clark

However, some suggest that the claims sector may need to do more to adapt to the changing environment, as Alex Finch, commercial director at Optera, points out: “Even a moderate upturn in summer subsidence claims applies severe pressure to the claims sector. A major change in resourcing, expertise and innovation would be required to keep pace with climate change.”

Sarah Dodd, founder and director at Tree Law, and chair of the Subsidence Forum, agrees that climate change is intensifying the challenges and emphasises the importance of retaining subsidence skills and knowledge: “No one has experience of dealing with a surge in a climate crisis – that is totally new. There is no doubt that succession planning needs to ensure that a pipeline of expertise remains in the industry.”

As well as having enough people and the right skills in place, effective management of subsidence claims is key and this has been addressed since the last large claims period, says Giles Carter, head of technical – subsidence at Crawford & Company.

Carter explains: “Since the surge in 2018, developments have been made to help improve the speed and consistency of inspections, mitigation repair and claim settlement. The process is virtually unrecognisable from that of the surge year of 2003, when paper forms and photographs on camera film were still the norm. However, the requirement for technical excellence remains front and centre.”

Technology developments, in particular have made a positive impact, says Karl Parr, claims technical and central services director at Axa UK: “Advances in technology are enabling insurers to investigate and monitor property movement. Insurers are now using remote monitoring solutions, which has reduced the need for regular site visits.

“[Technology] improvements have also been made to the way in which the root barriers can be constructed in confined spaces. This is enabling more solutions to the problems where otherwise significant tree removal or alternative underpinning would be required.”

Technology cannot take the place of personal experience though, according to Neil Grimes, claims director at the Clear Group: “In the past 30 years, I’ve seen a big difference in the way that claims are handled.

“We didn’t have anything like apps or videos to help us when I started. It’s exciting to see what will happen with technology, but it should not be a substitute for people because gut feeling matters when dealing with claims.”

Continued cover

As a high volume of claims can bring considerable costs – which look set to increase – the possibility of not providing subsidence cover might have crossed insurers’ minds.

However, Rebecca Rogers, head of property claims at Allianz Commercial, thinks that this is unlikely to happen: “I believe insurers have an obligation to meet market demands, and I don’t think we can just refuse to cover subsidence. My view is that we need to promote understanding and educate our customers to minimise risk in the first instance.”

I believe insurers have an obligation to meet market demands, and I don’t think we can just refuse to cover subsidence. My view is that we need to promote understanding and educate our customers to minimise risk in the first instance.” 
Rebecca Rogers

Carter also believes subsidence cover will remain: “The subsidence peril was only added to policies in the mid-1970s under pressure from building society partners, so it seems unlikely that this will change anytime soon.”

Others do perceive potential grey areas. Greg Rees, head of subsidence at Claims Consortium Group, says: “Cover will continue because insurance is based on unforeseen, unexpected events, which – for most – includes subsidence of your house. We know that the climate is changing though, and we know that clay shrinkage is the biggest problem.

“So insurers may have to be more stringent on the wordings of what is covered. If you’re buying a house, and you know it’s in a high-risk clay area and there are loads of trees around, then there’s a high risk of subsidence. It’s not an unexpected event you can insure for.”

Although the risk of subsidence is increasing, currently it seems unlikely that it will require a pool of last resort, such as Flood Re, as Graeme Trudgill, executive director at the British Insurance Brokers’ Association, explains: “This is not something being discussed by the insurance industry. However, it will depend on certain factors such as how claims develop, how risk may be able to be mitigated in the future, data mapping and the use of technology.

“It is likely that some properties will remain at high risk, in which case parametric cover might be the most affordable and suitable option without the need for a pool of last resort.”

Tackling the root cause

Tackling the roots of the problem could be one of the most effective strategies in combating the challenges of subsidence. “Insurers are addressing risk-like subsidence with a preventative approach, and deploying mitigation techniques to help make customers’ property more resilient, Dalton explains.

“For example, Zurich and its vendor partners track the soil conditions and long-term weather forecasts to allow us to plan accordingly. We also provide guidance on maintaining vegetation near property so these issues can be avoided.”

Education could not only prevent damage, but it could also avoid claims for minor damage. Subsidence claims are very carbon- intensive, and often involve removing trees, both of which have environment implications, so avoiding claims from starting in the first place is a key way forward.” 
Sarah Dodd

Others, such as Axa, are also providing online customer information on subsidence, explaining the signs of subsidence, what causes it, the risks involved and how to prevent and treat the problem.

There could be room for improvement, though, according to Dodd: “There is a lot of information in the industry about subsidence risk, but there is no doubt that insurers should take a more proactive approach to educating their customers about it. Education could not only prevent damage, but it could also avoid claims for minor damage.

“Subsidence claims are very carbon-intensive, and often involve removing trees, both of which have environment implications, so avoiding claims from starting in the first place is a key way forward.” 

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@postonline.co.uk or view our subscription options here: http://subscriptions.postonline.co.uk/subscribe

You are currently unable to copy this content. Please contact info@postonline.co.uk to find out more.

60 Seconds With... Foil’s Pete Allchorne

Pete Allchorne, partner at DAC Beachcroft and president of the Forum of Insurance Lawyers, would like to be “Doctorin’ the Tardis”, finds ironing therapeutic, and can be found dancing to “Uptown Funk” by Mark Ronson and Bruno Mars.

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here