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Chartered Insurance Institute
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Going in deep to build a picture of property risk

Blog article

The ways in which insurers and brokers in the property market can prepare and assess the risks caused by subsidence and land movement.

Recent reports confirm that global floods and extreme rainfall events have surged by more than 50% this decade, and are now occurring at a rate four times higher than in 1980. The UK has certainly experienced a succession of very wet winters in recent years, and whilst freezing temperatures lead to a whole host of property damage claims in the short-term, the impact these prolonged wet spells can have further down the line is often overlooked. Considering the insurance sector has not experienced a surge year for subsidence claims for over 10 years, it’s no surprise that subsidence is often referred to as ‘the forgotten peril.’

1 in 5 properties at risk

However, soil experts have warned that any extended periods of dry weather will cause waterlogged soil to contract, raising the risk of subsidence with potentially disastrous consequences for properties.

Subsidence occurs when the ground beneath a building sinks, and this is likely to take place when all the moisture is absorbed from the soil as a result of protracted dry spells.  Subsidence may also be caused by escape of water from drains, poor drainage, historical mining, soil movement, landslips and the headline grabbing emergence of sinkholes. 

As many as one in five properties in England and Wales are in danger of being damaged by subsidence,  being built on ground that swells as it gets wet and shrinks when it dries.

Although incidences of subsidence claims have been low since the last major surge, insurers could be exposing themselves to increased losses if they fail to gain a complete picture of property risk.  So it is with some concern that in a LexisNexis Risk Solutions study, insurers in the commercial space suggested they do not necessarily have a full picture of the properties on their books.

We found that only a third of insurers have a thorough and complete understanding of the location and associated risks of their commercial property portfolios, meaning that two thirds are potentially opening themselves up to losses. Although all insurers have some form of subsidence rating, it is only through the use of data and technology that the industry is able to achieve the fine degree of detail needed to fully understand subsidence risk as well as the wider risks related to a property.

Mapping the risk

Data mapping has emerged in recent years as a valuable tool to enable insurers and those working in the property market to achieve a detailed view of risk.  Insurers are already able to aggregate property, place and people-risk data from multiple sources and intelligently map this data to support risk selection and pricing of exposures.

Mapping solutions capture all relevant perils right down to individual property level.  For subsidence this includes the pattern of sink soil clay, the proximity of large trees and information around leaking drains and types of ground movement.   

The 5 ‘P’s of Property Risk

What if that property, people and place data was supplemented with past claims data contributed from the wider market as well as past policy information? To gain both an accumulated and granular view of property risk, it makes sense that key risk data is aggregated across five data sources:  Property, Place, People, Policy History and Past Claims. We call it the 5 P’s of Property Risk.  We know the power of contributory data in supporting pricing and underwriting accuracy in personal motor, we need to leverage that experience in the commercial property arena.

Subsidence should not be a forgotten peril but it’s a risk that should be viewed in the wider context of the risks associated with a property to provide an accurate and fair premium to the policyholder and protect insurance providers from unexpected losses.  For example, if you know a property has a risk of subsidence but can also see it has had no claims related to that risk, the ability to underwrite and quote on this basis is much improved.

86% of the UK commercial property insurers we surveyed said they believe that data and analytics will transform their business and leveraging data is a top priority.  Increasing the data sources available to the sector through new data sets such as a shared claims database, will increase the data driven insights created, enabling the insurance sector to fully understand their risk exposures.  In turn, they will be able to evolve their approach to ensure risk assessment goes as wide and as deep as possible and their underwriting strategies are on solid ground.