UK Subsidence – A clay-tastrophe waiting to happen?

When headlines like The Guardian’s “Climate crisis to put millions of British homes at risk of subsiding” 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 2002¹.

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?

Image 1: This image shows a property built on two types of soils which have different shrink-swell potentials. This can cause differential settlement and result in subsidence damage. Source: Gallagher Re

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 Gallagher 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.

“Gallagher Re can now help clients identify changes in their risk profile under different climate scenarios,” comments Will Thompson, Head of UK & Ireland, Gallagher Re. “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.”

Image 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.

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.

Terrafirma’s Director of Science, Dr Timothy Farewell, has created subsidence models for the insurance industry for decades, and says: “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,” adds Tina Thomson, Head of EMEA West and South Catastrophe Analytics at Gallagher Re. “In response, we have developed not only our own in-house 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.”

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 Gallagher 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.

Tom Perkins is Senior Catastrophe Risk Analyst for EMEA West & South at Gallagher Re

Rachel Gillespie is Head of UK Catastrophe Analytics and Catastrophe Analytics Service Offering Lead for EMEA West & South at Gallagher Re