The El Niño year and impact on subsidence claims

13 July 2023. Published by Andrew Roper, Partner and Aimee Talbot, Knowledge Lawyer

Insurers should be bracing for a wave of subsidence claims arising from the increasingly warm weather. The UN’s World Meteorological Organization (WMO) has declared that an El Niño climate event is in progress, which helps explain why June 2023 was the hottest on record in the UK.

El Niño (Spanish for "the boy") is a climate phenomenon where the trade winds in the tropical pacific are weakened or even reversed. Weaker trade winds allow the usually colder parts of the Pacific Ocean to warm, which changes rainfall patterns over the equatorial Pacific and large-scale wind patterns. This change in winds affects temperature and rainfall around the world. While the most immediate impact is in the tropics (flooding in South America and droughts in Southeast Asia, for example), high catastrophe losses can translate to higher premiums elsewhere; in the first instance for primary insurers as catastrophe losses impact the profitability of reinsurers, and ultimately for policyholders. Global insured natural catastrophe annual losses averaged approximately $100 billion over the past 5 years¹, putting pressure on reinsurers in particular.

And the financial climate is not likely to improve for Insurers in 2023 in this regard. El Niño events are the biggest natural influence on year-to-year weather and adds to the existing trend of increased temperatures caused by greenhouse gas emissions². The last major El Niño was from 2014 to 2016, with 2016 breaking records as the hottest year yet recorded. However, 2023's El Niño looks set to break records as June 2023 was the hottest on record in the UK.

Although tropical in origin, El Niño, and the warmer weather generally, is brewing a potential headache for insurers here in the UK: the risk of a wave of subsidence claims from autumn 2023.

Subsidence is one of the most damaging geohazards in the UK and cost the economy an estimated £3 billion over the past decade³. In most cases, subsidence occurs when the clay minerals in soil shrink as the volume of the water in soil reduces, primarily when it is absorbed by tree roots during the Spring and Summer growing seasons and swell during the wetter Autumn and Winter seasons when most vegetation is dormant. Dry weather and high temperatures are a major factor in this swell-and-shrink cycle because there is less water for trees to absorb. A dry Autumn / Winter followed by a dry Spring/Summer is the perfect storm for insurers of properties in areas with clay soil. The relatively dry Autumn/Winter coupled with the current temperatures and lack of rain are a cause for concern for property insurers.

Steps can be taken to reduce the risk, for example, by removing any trees or bushes near the property (or at least maintaining them with regular pruning) and by carrying out regular inspections of pipework, drainage and guttering systems.

In addition, early mitigation measures are crucial, as explained by Ally Yeadle in Subsidence mitigation: the legal principles, not only to prevent further losses but also to maximise the property insurers' prospects of a successful recovery action. If early mitigation is not an option, underpinning a property can be expensive and the required on-going monitoring process can become protracted.

Surveyors should ensure that they pay careful attention to any signs of movement when carrying out surveys and valuations in autumn. They should ensure that their engagement letters contain a clear explanation of the level of inspection undertaken and make clear any specific limitations on their inspection in their report.