Subsidence-risk-for-insurers

Subsidence – the Hidden Risk to your Portfolio

In Newsby ambrisk

Subsidence – the Hidden
Risk to your Portfolio

It’s late July and summer is most definitely here – that means sun, sand, sea and… subsidence risk?

When temperatures rise, leading to the kind of extended periods of hot, dry weather we’ve been enjoying recently, subsidence risk increases. Research undertaken by the Association of British Insurers reveals that the number of subsidence claims can rise by up to 60%, with a combined cost to the industry of more than £400 million, as seen during the heatwave of August 2003, the hottest summer on record since 1540.[1]

Back to today – weather forecasts indicate the summer of 2018 will be one of the hottest and driest for many years. The UK has already experienced weeks of high temperatures and low precipitation to date and this is expected to continue throughout August and into the early autumn – good news for holiday makers, bad news for property owners and insurers.

What is subsidence, and why is it a risk?

Subsidence can stem from multiple factors but can roughly be defined as the collapsing or sinking of the ground beneath the Earth’s surface. This can spell trouble for properties at risk of subsidence given the destruction it can have on building foundations, leading to costly repair work and insurance pay-outs.

Consequences of soaring temperatures and little rainfall – from the swelling and shrinking of clay, to trees and shrubs extending their roots in search for water –[2] increase this risk. Certain areas are more prone to the phenomenon than others and, without an accurate view of subsidence risk, insurers are unable to confidently write policies which could potentially lead to significant losses.

The financial impacts of subsidence

 Lee Jones, a Geological Engineer from our subsidence data partner the British Geological Survey, told us that “over the past 10 years the adverse effects of [subsidence] has cost the economy an estimated £3bn, making it the most damaging geohazard in Britain today.”

 The ABI reports that UK domestic property insurers receive around 35,000 domestic subsidence claims in a normal year, settled at a cost of around £250 million.[3] However, further research suggests that this figure could be higher, with the average annual cost standing at £400 million per year – by 2050 this is predicted to rise to £600 million.[4]

How can Ambiental help?

 In-house research at Ambiental has found that approximately 5 million UK addresses have a significant subsidence risk, with roughly 64% of address locations having some degree of subsidence risk.

Utilising the expertise that BGS offer, Ambiental have integrated detailed subsidence risk layers into our proprietary FloodScore™ product to provide a concise subsidence risk score down to the individual address level, or at the postcode level, for our insurance clients. Our unique partnership with Ordnance Survey means that the subsidence data is appended to all addresses in Great Britain and can be delivered alongside all data fields within AddressBase, including UPRNs.

 One thing is certain, based on past experience, this year’s unusually hot and dry summer will lead to increased claims for subsidence-related damage – having accurate information and being ready for it should reduce the impact on insurers’ portfolios.

We’d love to discuss any problems you’re currently facing around the effects of subsidence on your portfolio so please do get in touch, and one of our team will be happy to help. Our subsidence risk ratings can be delivered via many different mechanisms, with a range of pricing options available.

If you liked this blog you may also wish to read BGS’s blog on Building resilient futures: how climate change could affect subsidence hazards.

[1] Forestry Commission, Trees, People and the Built Environment (2011)

[2] Association of British Insurers, ABI Guide to Protecting your Home from Subsidence Damage

[3] Forestry Commission, Trees, People and the Built Environment (2011)

[4] Driscoll, R. M. C and M.S. Crilly, Subsidence Damage to domestic buildings: lessons learned and questions remaining (2000)

About the Author

Mark has a solid understanding of Ambiental’s products and the flood modelling processes behind them. He has a strong technical understanding and base knowledge of flood mapping and GIS processes, which is frequently put to good use to help assess clients’ particular needs and respond to any technical questions.

Mark Nunns
William_Doheny

About the Author

William Doheny is the Research Assistant at Ambiental Risk Analytics. His key role is to investigate and report on new innovations in flood data and analytics, and assist in the understanding emerging market trends.