Lloyd’s: Drought Caused Subsidence Costliest Natural Hazard in Parts of Europe

An article on the Lloyd’s web site notes that “news reports on climate change have focused on dire predictions of more hurricanes and increasing flooding due to rising sea levels. But subsidence caused by drought, which has already become a major problem across Europe, will also become much worse due to global warming.”

The phenomenon is one of the costliest, but as yet still largely unknown, risks to property. “Unlike a roaring storm, the damage wreaked by subsidence takes years rather than hours, but it can be serious,” Lloyd’s warned.

In some parts of Europe, subsidence claims are now the costliest natural hazard, comparable to serious flooding, according to a report from Swiss Re – “The hidden risks of climate change: An increase in property damage from drought and soil subsidence in Europe”. In France, subsidence-related claims have risen by more than 50 percent in the past 20 years, costing the affected regions €340 million [$484 million] every year on average.

The ongoing change in climactic conditions, especially drier weather in many parts of Europe, as occurred this spring increases the potential damage to property from soil subsidence. It is happening with more frequency and is “also spreading to new regions in Europe,” noted Matt Weber, Head of Property & Specialty Underwriting at Swiss Re.

Swiss Re and the Swiss Federal Institute of Technology (known as ETH Zurich) have developed a new model to reliably estimate future risks and calculate expected losses from soil subsidence across Europe.

Climate change is likely to “cause hotter, sunnier weather with more erratic rainfall, resulting in more droughts, which will increase the risk of subsidence,” Lloyd’s continued. “A prolonged heat wave may bake the ground, creating fissures that can tear apart the foundations of houses, bridges and factories. Evidence of these types of damages is showing up with greater frequency.”

Swiss Re’s model “shows that large parts of the UK, France, Denmark, and northern regions of Germany, Spain and Italy have seen their potential subsidence risk jump by more than 50 percent compared to the period 1951-1970.” Moreover, Swiss Re indicated that “most of these regions have not adapted to the greater risk.”

“Worse is likely to come. Southern areas of England, France, Spain and Italy as well as countries across Eastern Europe will see their risk of subsidence-related claims rise by a further 50 percent between 2021 and 2040 as climate change worsens,” Swiss Re stated.

“As the rising risk of subsidence becomes better understood, national and local governments should take measures to manage it, by taking it into account when planning and designing buildings and by beefing up building regulations. But insurance remains the most cost-effective option, the report concludes.

“Apart from traditional cover under property policies the industry should consider more innovative solutions to the problem, such as parametric or index-based covers, where the payout is determined by a pre-agreed trigger, for example if rainfall in a particular area is less than a predetermined amount.”

Trevor Maynard, Lloyd’s Head of Exposure Management, described the Swiss Re report as “excellent,” particularly in “its detail. He also noted that the rising risk from climate change-induced subsidence was highlighted in a 2006 Lloyd’s report, “Adapt or Bust,” issued as part of Lloyd’s 360 series.

Swiss Re has “augmented insurance data with solid scientific data relating to droughts. It’s particularly important that they show an increase in subsidence costs has already occurred and that they link it to climate change. They note that their model understates the losses in 2003, so peak subsidence events could cost even more than illustrated. That said, we agree with their conclusion that loss models give very useful information when assessing risk,” Maynard added.

He also indicated that Swiss Re’s recommendation to undertake “forward-looking estimates of loss when assessing risk” – is an “approach we fully agree with. We also concur with their general point that climate change adaptation works hand in hand with insurance to keep premiums affordable for longer.”

Source: Lloyd’s of London

Topics Excess Surplus Europe Property Climate Change Lloyd's Swiss Re