PRESS RELEASE : Continued extreme heat could see subsidence insurance payouts increase to £1.9bn by 2030 [July 2023]

The press release issued by PWC on 10 July 2023.

Sustained heat, floods and heavy rainfall could also 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 will see significant  impact if levels of sustained heat continue. The findings reflect the impact record temperatures can have on insurance claims, with a global increase in unusually hot summers.

In addition, the extreme winter weather from 2019 to 2020 saw economic losses of £333 million due to flooding and this figure could soar to £500m in 2050 assuming that flood-management approaches and expenditure remain unchanged.

Mohammad Khan, General Insurance Leader at PwC UK, said:

“Our model attempted to put a numerical figure on the impact extreme weather will have on insurance claims. With 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.

“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.

“Extreme weather 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.

“It’s clear that ongoing impact on climate change will significantly shape how the sector will choose to manage and absorb risks, and our new modeling proves that potential costs could be the deciding factor as to whether a household receives vital cover or not.

“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:

• 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
• The expected cost of subsidence for insurers could increase to £1.9bn by 2030
• 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