Ground risk specialist, Terrafirma, warns that there is just one month to go until the Bank of England launches regulatory climate stress testing. This will initially affect all the largest insurers, banks and building societies who will have until the end of the year to feed back to the Bank of England. It is then expected to be rolled out to smaller insurers over the next two years.
To help, Terrafirma has updated its pioneering, ground-instability climate risk model NGRM: ClimateTM to include specialist information on subsidence and sinkholes to help insurers assess the increase in the number claims they are likely to receive. It will also help them to meet their regulatory responsibilities and feed back to the Bank of England.
Terrafirma, which specialises in risks to property, land and assets from all major ground hazards, has spent the last six years’ positively disrupting the conveyancing property search market by providing them with the tools that they haven’t previously had.
While some insurers will be familiar with ground movement hazards, the release of NGRM: Climate is the first time that all these hazards have been covered in a single dataset and made easily accessible by insurers.
As part of climate stress testing, the UK’s biggest banks and insurers will take part in the Climate Biennial Exploratory Scenarios (CBES) this year, which is likely to influence the shape of regulation for the wider market. Even without the Bank of England’s initiative, it is sensible that UK insurers of all sizes begin to familiarise themselves with information on their insurance book’s exposure to the physical risks from climate change.
Current climate models for the UK project more extreme weather, with acute events posing greater risk of significantly more claims and uninsured losses.
The Bank of England’s Climate Financial Risk Forum (CFRF) provides authoritative guidance for mortgage lenders when it comes to assessing the climate change-related risks associated with residential property, but insurers should take note. The guide, published in June 2020, refers to a range of relevant data sources for firms to consider including physical risks like flooding, ground stability, natural ground hazards, coastal erosion and transition risks like Energy Performance Certificates.
Terrafirma developed NGRM: ClimateTM after market research revealed market frustration within the insurance industry that existing natural hazard datasets were not as useful as they needed to be. It has now updated to provide insurers with all the ground data information recommended by the Bank of England’s CFRF guide. This will significantly help with underwriting risks from climate change.
Using NGRM: Climate, insurers of any size will now be able to access property-level climate data on soil subsidence, coastal erosion, cliff collapse and landslides. Data on mining and other sinkhole-forming natural processes are also included in the package to provide insurers with a complete understanding of the full range of ground instability risks to property, that can lead to sinkhole formation.
Dr Tim Farewell joined Terrafirma in January 2020 to oversee the development of NGRM: Climate following almost two decades researching and modelling soil movement and other ground hazards for the insurance and water industries. He explains:
“It is vital that hazards associated with ground movement aren’t considered in isolation, which is why NGRM: Climate offers insurers four key modules covering the potential risk of subsidence and coastal erosion, cliff collapse and landslides, as well as mining and natural voids which can result in sinkholes. Terrafirma is the only company offering a dataset that enables insurers to understand the risks in their portfolio from all ground perils.
“A distinctive element of NGRM: Climate’s unique market offering includes direct access to Terrafirma’s ground risk experts to explain the data, the claims risks and any opportunities. It is so precise that it can even pinpoint the risk to individual properties. This will support the integration of the new ground risk data within climate stress testing, risk management and underwriting. Importantly, direct access to Terrafirma’s science team will help insurers understand more about the impacts, so they can make safer and sustainable underwriting decisions.
“Given the current climate projections, which see short-term risks increase under all future emissions scenarios, insurers need information that looks forward, not backward, for accurate assessment of all major ground instability risks.”
Terrafirma’s geologists, scientists and engineers are established leaders in the risk to property from ground hazards. Terrafirma has won several industry awards for its mining and natural ground stability reports. As a result, it is uniquely placed to support insurers as they seek to identify and manage ground risk in their insurance portfolios.