Sustained heat, floods and heavy rainfall could see insurers hit with further increased costs, with subsidence related insurance costs swelling to over £1.9bn by 2030 according to new analysis by PwC.
The fresh analysis shows that subsidence related insurance could see a significant rise, if levels of sustained heat and rainfall continue, says PwC. At present the UK is having a typical summer where, after a short heatwave of under two weeks in many parts, bands of heavy showers track across the country and temperatures fall to the 18-22C range. May was also exceptionally cold compared to many previous early summers. That said, rainfall has been relatively low in many parts of the UK this year and that is arguably a bigger risk in terms of subsidence as the ground dries out and water tables fall.
Flash floods are another regular risk and as more houses are built and the population grows, the potential costs to insurers will inevitably rise too. According to PwC the winter weather from 2019 to 2020 saw economic losses of £333 million due to flooding and this figure could soar to £500m in 2050 depending on the success of various flood management schemes, local councils/govt agencies failing to clear drains, streams and rivers and the continued building of new homes on flood plains.
MODELLING SCENARIOS
Mohammad Khan, General Insurance Leader at PwC UK, said:
“Our model attempted to put a numerical figure on the impact of 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.
The UK school holidays are fast approaching and this always coincides with a spike in arson, property vandalism and fires being started in remote areas as under 18s look for things to do. PwC’s Mohammed Khan notes;
“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. 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. 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”
PwC modelled the insurance impact on increased weather related losses under the high end of the range of future pathways (Shared SocioeconomicPathways 5-8.5).The findings from the model showed that:
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The economic losses from the winter 2019 to 2020 flooding, which were about £333 million, could increase to close to £500m under this climate change scenario, assuming flood-management approach and expenditure remain unchanged and before allowing for inflation
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The expected cost of subsidence for insurers could increase to £1.9bn by 2030
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The economic cost of flooding in the UK could increase up to 18% for fluvial flooding and 43% for coastal flooding, on average by 2050.
For more information Scenario Modelling for insurers please visit the website: https://www.pwc.co.uk/services/sustainability-climate-change/insights/pwc-supports-unep-fi-psi-tcfd-pilot-project-climate-scenario-analysis.html).
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