How sinkholes will impact insurance policies

According to the British Geological Survey: “Sinkholes are often saucer-shaped holes that occur as the result of a collapse or removal of an underlying layer of rocks that is used to support the materials on the surface.”

In the alternative accommodation industry, we regularly see reports of large-scale flooding and storms affecting tenants and policyholders alike, causing devastation to homes and businesses. 

Sinkholes are often saucer-shaped holes that occur as the result of a collapse or removal of an underlying layer of rocks that is used to support the materials on the surface.

Now sinkholes are emerging as another risk – often requiring alternative accommodation. 

Insurers are investing in updated geological surveys, data collection, and predictive models to better understand regions prone to this peril. In March 2025, two large sinkholes appeared on a residential street in Surrey after a water main burst. 

The incident was widely reported, with some suggesting the sinkholes were caused by erosion of the bedrock above old mines beneath the town. 

Regardless of the cause, it is clear that incidents of this severity can lead to widespread disruption and policyholders needing to be placed into alternative accommodation.

Main causes

The main causes of sinkholes are: 

• Heavy rainfall/flooding.
• Water leaks which can happen suddenly.
• Construction works and development.
• Changes to the water table – seasonally affected.
• Due to mining, with pits long closed down, leaving large cavities beneath. 

Heavy floods can damage water pipes, causing them to collapse and leak. This is partly because ageing pipes can corrode as they age. 

Infact, a large proportion of the UK’s water mains are Victorian – built extremely well, but surely past their ‘sell-by date’ by now. 

A question to ask – isn’t it time to invest in sustainable urban drainage systems? There are actually numerous sinkholes in the UK, but traditionally they have appeared in rural areas, including North East England, the Peak District, the Mendips and parts of Wales. 

However, sinkholes are appearing more often in towns. It begs the question – is it because of so many more floods and storms occurring due to climate change? 

In fact, in 2014, after a particularly wet winter, scientists recorded a five-fold increase in the number of sinkholes, suggesting that more would likely occur. 

A review of recent BBC reports of sinkholes, showed seven sinkholes appearing in towns from December 2023 to March 2024. 

A year later, that number rose to 11, and those were just the ones that were reported. The rise in sinkhole incidents brings new challenges for insurers: are premiums likely to be higher in areas that sinkholes have occurred? 

Some factors to consider: 

• Risk-based pricing – insurers may need to adjust premiums based on the sinkhole risk of a given area.
• Properties in sinkhole-prone areas might face higher premiums or more rigorous underwriting requirements.
• Potential costs can be incurred – having to re-house policyholders, and repair damage.
• The impact on future policies – premiums could go up, higher excesses and exclusions added, etc – these will all have a factor to play, not just for households but for businesses too.

The trauma of such unpredictable events can understandably leave residents extremely anxious for what the future might hold for their homes. 

In many cases, some policyholders have to vacate their homes for several months, and in some cases up to a year. This is extremely upsetting and causes much upheaval. 

Industry specialists familiar with supporting policyholders are imperative to take away the stress and assist in their hour of need.