Continued extreme heat could cause high subsidence payouts, predicts PwC

PwC has predicted that continued extreme heat could see claims settlements on subsidence insurance policies increase to £1.9bn by 2030.

In a new risk analysis based on modelling of the insurance impact on increased weather-related losses under the high end of the range of future pathways (Shared Socioeconomic Pathways 5-8.5), the professional services firm also found that extreme winter weather from 2019 to 2020 saw economic losses of £333m due to flooding.

It predicted that this figure could soar to £500m in 2050 if flood-management approaches and expenditure remain unchanged.

The economic cost of flooding in the UK, meanwhile, could increase up to 18% for fluvial flooding and 43% for coastal flooding, on average by 2050.

Mohammad Khan, PwC’s UK general insurance leader, explained the figures: “Our model attempted to put a numerical figure on the impact extreme weather will have on insurance claims.

“With repeated very hot summers, we are seeing a rise in subsidence cases. Given the already dry soil and further hosepipe bans, we could see a significant spike in subsidence, which causes the ground beneath a building to sink and potentially pulling the foundations down with it.

“We are also seeing other property damage claims related to fires starting in nearby open areas that then spread to homeowners’ gardens and result in fence, garage and decking fires.

“Extreme weather events like this can result in some insurers taking drastic action, such as exploring the risk/cost benefit of giving cover in certain circumstances. This can result in cover for some risks becoming unaffordable or simply unavailable for home-owners in the worst affected areas.

Khan continued: “It’s clear that ongoing impact on climate change will significantly shape how the sector will choose to manage and absorb risks, and our new modeling proves that potential costs could be the deciding factor as to whether a household receives vital cover or not.

“Scenario modelling is an important step towards understanding climate change losses and managing its impacts on the future cost and availability of insurance and should be seen as more than a reporting exercise.”

Image source: Canva

Mark Dugdale