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Blog: Subsidence, the forgotten peril

The year 1976 saw the first surge of subsidence insurance claims. Four decades later, why is subsidence the forgotten peril...
The subsidence story starts in the early 1970s. Although subsidence has damaged properties in the UK for hundreds of years, it simply wasn't a consideration for insurers as domestic policies offered no cover. However, with the boom in private home ownership in the early 1970s, mortgage providers thought this would be a useful addition to protect their position. Insurers were happy to oblige by adding a low risk 'nice to have' peril to policies, keeping their corporate customers happy. 
The fairly unremarkable story continues into 1976, the year Concorde made its first commercial flight and Apple launched its computers. The summer was long and hot, resulting in zero rainfall for 45 days, dry reservoirs and a severe drought, which led to water rationing in several regions. Many properties were affected by subsidence caused by clay shrinkage, resulting in a massive surge in subsidence claims, which proved to be both unexpected and very expensive for insurers.
Further surge events occurred in 1985, 1990, 1992, 1995, 1996, 2003 and 2006. Individual surge years regularly resulted in 50,000 subsidence claims and repair bills exceeding £400m, with over £14bn spent during the last four decades. However, numbers have dwindled over the last 10 years, with only 16,000 claims instructed to the market at a likely cost of around £60m. Subsidence has become something of a forgotten peril.
So, what has the insurance industry done to significantly reduce numbers and make annual savings of £340m...
Well, in truth, not a lot. While public awareness of the risks from trees in areas of clay soils has increased, some problematic trees have been removed or maintained, some susceptible properties repaired and new build construction has improved – the simple fact is that the UK has just not had the right combination of very hot, dry weather to trigger a subsidence surge for 10 years.
Properties in the UK remain at risk from subsidence in 2016. Since the last surge in 2006, trees have grown and matured, new trees have been planted and many susceptible additions like conservatories, garages and porches have been erected.
History has shown that what has gone on so far this year will have little relevance to the final subsidence numbers for 2016. The surge of 2003 followed a prolonged wet and cold winter, whereas dry winters have been followed by summers that have yielded much lower claim numbers. What we do know is that an extended period of exceptionally hot, dry weather between June and September, particularly in the clay soil areas of the South East, will be the deciding factor. Not even the Met Office is able to predict the long-term weather with any great accuracy beyond a couple of weeks, so it is impossible to predict what will happen in 2016. However, what is certain is that the risk has not gone away.
If 2016 sees a 40th anniversary surge, insurers and their suppliers won't necessarily be ready after a 10-year break. There is a real danger that the industry has been lulled into a false sense of security on subsidence. There are certainly fewer claims specialists among insurers and their suppliers with experience of handling a surge situation, so an influx of five times business-as-usual numbers in Autumn and a significant increase in valid claims would certainly be a test.
The biggest challenge could be communication, especially around managing customer expectations on service and response times. The best use of appropriate new technology will certainly be vital for the first surge in the social media world.

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