Zurich, 4 July 2011 – Europe is witnessing a dramatic increase in
property damage as a result of soil subsidence. Climate change
could magnify those risks, a new Swiss Re publication shows. A
new loss model developed by Swiss Re and the Swiss Federal
Institute of Technology (ETH Zurich) suggests that soil
subsidence will worsen and spread in Europe, with some areas
seeing a more than 50% rise in future losses.
Prolonged dry spells, as recently seen in parts of Europe, can cause the
ground to sink by so much that cracks appear in the earth, tearing
apart the foundations of houses, bridges, factories and other
structures. In the worst case, whole buildings can collapse. Climate
change will magnify these risks as factors such as rising average
temperatures and more erratic rainfall continue to alter soil conditions.
"As our climate continues to change, the risk of property damage from
soil subsidence is not only increasing but also spreading to new
regions in Europe," says Matt Weber, Head of Property & Specialty
Underwriting at Swiss Re.
European property insurers face major potential losses from droughtinduced
soil subsidence, states Swiss Re's latest publication "The
hidden risks of climate change: An increase in property damage from
drought and soil subsidence in Europe". In France alone, subsidencerelated
losses have risen by more than 50% in the last two decades,
costing affected regions an average of EUR 340 million per year.
To better quantify and more adequately price risks associated with soil
subsidence, researchers from Swiss Re and ETH Zurich have
developed a new loss model. It combines Swiss Re's expertise in
natural catastrophe modelling with drought-related data compiled by
the Zurich-based Institute for Atmospheric and Climate Science.
Large parts of Europe will experience more sporadic rainfall and drier
soils in the future and these areas will therefore face greater losses
from shifting soil, the model shows. In some regions, the soil
subsidence loss potential for the period 2021– 2040 is expected to
increase by more than 50% compared to today.
Soil subsidence is an insurable risk. As the problem becomes more
widespread, however, a more economical solution for affected
communities will be to combine incentives for constructing more
subsidence-resistant buildings with insurance to cover damage from
the most extreme droughts and soil movements. Various risk transfer
solutions are available to protect against losses from such events.
Besides traditional indemnity-based policies, parametric covers and
index-based schemes could offer a viable solution. These innovative
products, which pay out whenever their index crosses a predefined
threshold, have the advantage of lower administrative costs and
ensuring quicker disbursements.
"Efforts to manage soil subsidence risks are most effective when they
form part of a broader climate adaptation strategy that takes long-term
climate impacts into account and engages multiple actors in finding
the right solutions," says David Bresch, Head Sustainability & Political
Risk Management at Swiss Re.
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