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The Actuary The magazine of the Institute & Faculty of Actuaries

Climate change contributing to surge in subsidence damage

The rising trend of property damage in Europe as a result of soil subsidence is expected to increase further as a result of climate change, according to Swiss Re.

A new loss model developed by the firm in partnership with the Swiss Federal Institute of Technology (ETH Zurich) suggests that soil subsidence will worsen and spread in Europe, with some areas seeing more than a 50% rise in future losses.

Cracks in the earth caused by prolonged dry spells, as recently seen in parts of Europe, can tear apart the foundations of houses, bridges, factories and other structures, or cause whole buildings to 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 and specialty underwriting at Swiss Re.

In France alone, subsidence-related losses have risen by more than 50% in the last two decades, costing affected regions an average of EUR 340 million per year, the report says.

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.

While soil subsidence is an insurable risk, the report says that, as the problem becomes more widespread, 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, according to Swiss Re. The firm points to parametric covers and index-based schemes as well as traditional indemnity-based policies.

"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 and political risk management at Swiss Re.