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UK subsidence - a clay-tastrophe waiting to happen?

Reinsurance
Climate Risk and Resilience

By Tom Perkins and Rachel Gillespie | October 5, 2021

Our new partnership with Terrafirma provides our clients with an additional climate tool to broaden their view of the subsidence risk in the UK.

When headlines like “Climate crisis to put millions of British homes at risk of subsiding” (Guardian, May 2021)1 reach our front doors (or most likely phones), there is an almost audible intake of breath from collective UK insurers. And with good reason – hot, dry summers are the chief culprits of subsidence and the UK’s top 10 warmest years on record have all come since 2002.2 However, to use the phrase elegantly coined by economist and journalist Tim Harford, we should all aspire to avoid premature enumeration when diving into these statistics: before we put a number on it, how are we defining ‘at risk’? What counts as subsiding? What is our baseline climate to compare with given climate change is ongoing?

This image shows a property built on 2 types of soils which have different shrink-swell potentials.
This can cause differential settlement and result in subsidence damage.
Fig 1: This image shows a property built on 2 types of soils that have different shrink-swell potentials. This can cause differential settlement and result in subsidence damage.

Source: Terrafirma

Precise subsidence risk quantification

Trying to meticulously assess subsidence risk to UK properties is almost as challenging as getting a table of underwriters to agree how it should be pronounced (sub-sid-ence or sub-side-ence??), and it is increasingly in the crosshairs of insurers. Accompanying the very strong evidence that climate change is increasing the overall probability of shrink-swell subsidence, insurers now also have a growing suite of analytical tools available to them to support their risk management.

Front and centre of these is the latest offering from Terrafirma, the ground perils risk experts who have partnered with Willis Re to bring cutting edge subsidence analytics to insurers. By incorporating all key aspects of subsidence - soil type, climate conditions, and local environmental conditions - at property level granularity, this provides the firepower required to fully evaluate the risk to any UK portfolio both today and in future climate scenarios.

With climate change likely to increase subsidence risk in the UK, it will become increasingly important to not only better measure the risk but decide how best to manage these exposures.”

Will Thompson | Managing Director, Head of UK & Ireland, Willis Re

“Willis Re can now help clients identify changes in their risk profile under different climate scenarios. With climate change likely to increase subsidence risk in the UK, it will become increasingly important to not only better measure the risk but decide how best to manage these exposures” - Will Thompson, Managing Director, Head of UK & Ireland.

For a zoomed in area of the South East of England, when looking at present day (top image) to 2080 (bottom image),
areas prone to subsidence risk will become more widespread. These areas affected by subsidence are coloured in red.
Fig 2: For a zoomed in area of the South East of England, when looking at present-day (top image) to 2080 (bottom image), areas prone to subsidence risk will become more widespread. These areas affected by subsidence are coloured in red.

Source: Terrafirma

Aligning to business motivations

The motivation to consider subsidence goes beyond risk management though, with regulators also turning their gaze on this more subtle of natural catastrophe perils – mainly because while UK subsidence isn’t going to be triggering any reinsurance claims within a Catastrophe Excess of Loss hours clause timeframe anytime soon, it is creating an ever larger obstacle to profitable underwriting.

It’s no coincidence that the Bank of England has included UK subsidence in the Climate Biennial Exploratory Scenario (CBES) 2021, the first-of-its-kind test of a country-wide financial system’s resilience to climate change. Terrafirma’s offering is perfectly aligned to these requirements, with a range of emissions scenarios up until the furthest reaches of the CBES scenarios in 2080.

Subsidence is a growing concern for insurers, and coastal erosion appears to be accelerating and impacting more properties.”

Dr Timothy Farewell
Terrafirma’s Director of Science

Terrafirma’s Director of Science, Dr Timothy Farewell has created subsidence models for the insurance industry for decades. “What I love about the National Ground Risk Model (NGRM: Climate) is that it enables non-geoscientists to rapidly identify a huge range of complex geohazards which could impact on a property, and its availability couldn’t be more timely. Subsidence is a growing concern for insurers, and coastal erosion appears to be accelerating and impacting more properties. And that’s before considering the dangers from landslides and sinkholes from abandoned mines and voids in the ground, demonstrating how many ground hazards are hidden. NGRM is a step forward in making all those risks as clear and quantifiable as possible at a property level so that insurers don’t have many nasty surprises.”

Prudent risk management practices plus recent regulatory attention has underlined the benefits to European clients of being able to more accurately quantify exposure to secondary perils like subsidence.”

Tina Thomson | Head of EMEA West and South Catastrophe Analytics at Willis Re

“Prudent risk management practices plus recent regulatory attention has underlined the benefits to European clients of being able to more accurately quantify exposure to secondary perils like subsidence. In response, we have developed not only our own inhouse solutions for France but also partnered with state-of-the-art ground hazard provider TerraFirma to support our clients in understanding their present and future exposures to ground risks in the UK.” – Tina Thomson, Head of EMEA West and South Catastrophe Analytics at Willis Re.

There is evidently a need to proactively manage the risk posed by the susceptibility of clay soils to expand and contract in a changing climate. The combination of Willis Re’s industry knowledge in supporting clients proactively managing their natural catastrophe exposure coupled with the leading expertise and tools from Terrafirma offers a unique ability to investigate the risk of UK subsidence. For more information please get in touch.

Footnotes

1 https://www.theguardian.com/environment/2021/may/19/climate-crisis-to-put-millions-of-british-homes-at-risk-of-subsiding

2 Based on the Central England Temperature (CET) series from 1659

Authors

Senior Catastrophe Risk Analyst, Willis Re EMEA W/S

Tom works with clients, academics and commercial vendors to assess natural catastrophe risk to insurance portfolios in the UK and other territories. In his current role Tom focuses on the development and deployment of solutions quantifying the impact of climate change on physical risk for clients across Willis Re’s International and Specialty businesses.


Head of UK Catastrophe Analytics and Catastrophe Analytics Service Offering Lead in Willis Re EMEA West & South

Rachel leads a large team of catastrophe analysts working on UK client projects. Rachel also orchestrates all the work outside the remit of renewals for stakeholders across EMEA West and South, such as model evaluations, model developments and connecting the business unit with the Willis Research Network.


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