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Swiss Re Warns Europe of Increasing ‘Soil Subsidence’ from Climate Change

July 5, 2011

According to a new study from Swiss Re, “Europe is witnessing a dramatic increase in property damage as a result of soil subsidence.” A new loss model developed by Swiss Re and the Swiss Federal Institute of Technology (ETH Zurich), also concludes that “climate change could magnify those risks.”

The publication suggests that “soil subsidence will worsen and spread in Europe, with some areas seeing a more than 50 percent rise in future losses. Prolonged dry spells, as recently seen in parts of Europe, can cause the ground to sink by so much that cracks appear in the earth, tearing apart the foundations of houses, bridges, factories and other structures. In the worst case, whole buildings can collapse.”

While the study – “The hidden risks of climate change: An increase in property damage from drought and soil subsidence in Europe” – doesn’t cite overall climate change as a direct cause for the increase in soil subsidence, it describes a strong link to the condition that will “magnify these risks as factors such as rising average temperatures and more erratic rainfall continue to alter soil conditions.”

Matt Weber, Head of Property & Specialty Underwriting at Swiss Re, stated: “As our climate continues to change, the risk of property damage from soil subsidence is not only increasing but also spreading to new regions in Europe.”

As a result, Swiss Re warned that European property insurers “face major potential losses from drought induced soil subsidence. In France alone, subsidence related losses have risen by more than 50 percent in the last two decades, costing affected regions an average of €340 million [$492 million] per year.”

To better quantify and more adequately price risks associated with soil subsidence, “researchers from Swiss Re and ETH Zurich have developed a new loss model. It combines Swiss Re’s expertise in natural catastrophe modelling with drought-related data compiled by the Zurich-based Institute for Atmospheric and Climate Science,” said the bulletin.

Large parts of Europe will “experience more sporadic rainfall and drier soils in the future and these areas will therefore face greater losses from shifting soil, the model shows. In some regions, the soil subsidence loss potential for the period 2021– 2040 is expected to increase by more than 50 percent compared to today.”

Swiss Re confirmed that “soil subsidence is an insurable risk;” however, the reinsurer points out that as the problem becomes more widespread, “a more economical solution for affected communities will be to combine incentives for constructing more subsidence-resistant buildings with insurance to cover damage from the most extreme droughts and soil movements.

“Various risk transfer solutions are also available to protect against losses from such events. Besides traditional indemnity-based policies, parametric covers and index-based schemes could offer a viable solution. These innovative products, which pay out whenever their index crosses a predefined threshold, have the advantage of lower administrative costs and ensuring quicker disbursements.”

David Bresch, Head Sustainability & Political Risk Management at Swiss Re, concluded: “Efforts to manage soil subsidence risks are most effective when they form part of a broader climate adaptation strategy that takes long-term climate impacts into account and engages multiple actors in finding the right solutions.

Source: Swiss Re

Topics Europe Property Climate Change Swiss Re

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