09 June 2023
Could insurers be facing another summer of bumper subsidence claims?

The past year has not been easy for small and medium-sized enterprises (SMEs), with a host of financial difficulties putting pressure on ev

Subsidence is one of the biggest issues that can affect a property, knocking up to 20% off its value and often rendering it unmortgageable until the issue is resolved. It is estimated that by 2050, 1.9 million households may be at risk of subsidence-related issues.

The heatwave of 2022, which saw record temperatures of over 40°C last July, resulted in the biggest payout on subsidence claims since 2006 – a total of £219 million, according to the Association of British Insurers (ABI). LV= General Insurance (LV=GI) said that it alone was dealing with claims worth £1.2 million, representing a 205% increase in subsidence cases between June and July.

With the planet now set to hit the global warming threshold of 1.5°C above pre-industrial levels by 2027, the temperatures seen in 2022 are unlikely to be a one-off. So, what impact could increased subsidence have on the insurance industry?

Another surge is unlikely in 2023

In spite of last years surge in claims, this year’s weather thus far means that a similar rise is unlikely in 2023. According to an article published in Insurance Post earlier this year, a return to normal rainfall levels in March and April will have helped rehydrate the soil, thus reducing the risk of soil shrinkage and cracks that can cause subsidence.

Even so, subsidence is only going to get more common as the weather gets hotter and dryer, with the potential to wreak havoc on properties and on the lives of those who occupy them. But given that insurers can’t control the weather, what can they really do to prevent increased subsidence claims from also wreaking havoc on their business?

That sinking feeling

According to LV=GI, it all comes down to education.

Research from the insurer suggests that many homeowners don’t recognise the warning signs of subsidence, or don’t understand what they should do after spotting them. In a survey, just over half (51%) of respondents said they had contacted their insurers after spotting signs of subsidence in their home – but over a quarter (26%) didn’t do anything at all.

Many homeowners were also unaware of key information like whether their building insurance covered subsidence or the type of soil their home’s foundations were built on.

Yogesh Patel, a subsidence claims specialist at Aviva, told Insurance Post:

“As an insurer, we work with our suppliers to ensure we are able to protect our customers when they need us most, but we also try to help customers take measures which will prevent excessive damage in the first place, minimising disruption.”

For example, in May Aviva released guidance for homeowners planning to plant trees or shrubs close by their property this summer, reminding them that doing so could increase the risk of subsidence. Advice included:

  • Choose the right variety of tree
  • Don’t plant trees or large shrubs close to outbuildings
  • Consider whether any shrubs could be moved
  • Maintain trees with pollarding to reduce their water requirements
  • Be particularly vigilant if clay soils are common in your region.

Adjusting to a new reality

We all know that prevention is better than cure, but weather trends mean that increased levels of subsidence are almost inevitable in the near future. This may result in insurers reducing capacity for subsidence-related risks, increasing home insurance premiums and excesses, or even withdrawing cover for homeowners whose properties have previously been affected by subsidence.

In fact, the ABI has already warned homeowners that home insurance premiums could rise in 2023. General Manager Laura Hughes commented: “Last year was a stark reminder that the only thing predictable about the UK’s weather is that no one knows what it will do next.” Whilst this will clearly present challenges to insurers, she added: “Despite the amounts paid out last year, and a rise in the costs of building materials and labour, home insurers will continue to do all they can to offer competitive deals to customers.”

en the most resilient firms and traders. A report by Allianz has shone a light on the biggest challenges faced by SMES in 2023. How are these obstacles affecting the way SMEs approach insurance?

Energy and supply chains

No two SMEs are the same, but the challenges they have been facing in 2023 have many of the same causes. Following the uncertainty of Covid-19 and Russia’s invasion of Ukraine, UK businesses have had to contend with rampant inflation and turbulent financial markets. On top of that, logistical problems have added to the stress and strains.

In the report, SME decision-makers stated that their most significant day-to-day problems included:

  • Energy bills (53%)
  • Supply chain problems (35%)
  • Late payments or unpaid invoices (30%)
  • Competition (27%)

The report also drew attention to some of the ways companies are dealing with these problems. Solutions to high energy bills include energy saving measures like changing the way their business operates (46%) or installing solar panels or other technology (23%).

The insurance impact

Despite the turbulence of the past year, a clear majority of SMEs (60%) have kept their insurance cover unchanged in the past 12 months. Moreover, a greater number have increased their cover (21%) than reduced it (19%).

Looking ahead to the rest of 2023, respondents acknowledged inflation and the cost-of-living crisis (64%) as a key concern, with more than seven in 10 stating that the crisis is having a negative effect on their business. Other threats include the state of the UK economy in general (33%) and the impact of Brexit (25%).

SMEs play a vital role in the UK’s economy, accounting for more than 99% of the business population. SMEs dominate insurance too, with insurance premiums written for SMEs representing more than 60% of the gross premiums written for commercial property and casualty lines.

Dialogue still key

In times of uncertainty, the insurance needs of SMEs can change quickly – and insurers need to be ready to meet these demands.

Commenting on the report, Helen Bryant of Allianz said, “SMEs are having to be increasingly agile and adapt their business models or modify their operations. These agile entrepreneurs need to let their insurance provider know when they’ve made significant changes as this could lead to gaps in cover.

“In this regard, brokers play a crucial role: their expertise will help businesses have the right protection for their changing needs. In this way, the insurance industry can really support business diversification.”

At Focus, we’re always here to help our brokers with the challenges that they and their clients are facing. To chat with us about our range of bespoke construction products, please call us on 0345 345 0777 or email