12. Domestic Property Insurance Claims Related to Damaging Weather Events
JP Palutikof

Value of insurance claims (1996 values, adjusted for inflation) for property subsidence in England and Wales shown in relation to April-September rainfall in England and Wales (1996 values, adjusted for inflation)
Value of insurance claims for property damage due to "major weather perils" in England and Wales.

Specific Indicators
Two indicators are considered here: first, the value of annual UK domestic (non-commercial) insurance claims for subsidence and, second, the value of annual UK domestic claims for 'major weather perils'. The latter encompasses principally gale damage, damage due to burst pipes following episodes of freezing weather, and flood damage. Values are standardized to 1996 prices using the Retail Price Index. In a typical year with no climate extremes, the value of claims for these indicators will be around £150 million for subsidence, and a little higher for major weather perils.
[Source: The Insurance Statistics Yearbook. Also: Association of British Insurers, 51 Gresham St., London EC2V 7HQ]

Relevance
Exposure to large losses due to weather hazards are of major concern to the insurance industry. Much of this anxiety relates to events outside the UK, but there is also concern that claims for subsidence, gale and flood damage in the UK are rising. The potential role of global warming to increase the risk of damaging events is well understood by the insurance industry.

Sensitivity to climatic and other factors
The insurance industry is only affected by extreme weather events when the resulting damage is covered by insurance. For example, the industry did not introduced cover for landslide and subsidence to domestic insurance policies until 1971, so that the scale of the foundation damage associated with the drought of 1975-6 was entirely unexpected. Four types of extreme weather event in the UK give rise to large volumes of insurance claims.

1. Hot, dry summers lead to subsidence in building foundations on clay-rich soils, i.e., mainly locations in SE England.
   
2. Wind storms cause damage especially when accompanied by heavy rain. A common scenario is for the roof to be damaged by wind followed by rain damage to the house contents. In fact, the notable wind storms of the last decade or so in the UK (i.e., 1987 and the wind storms of January-February 1990) were not accompanied by rain.
   
3. Freezing weather causes damage, even in a relatively mild winter, when a short episode of very cold temperatures can produce substantial claims for burst-pipe damage. Although householders are more likely to have centrally-heated houses and lagged pipes than in the past, they are more likely to take a winter holiday, leaving the house empty and unheated. The balance of opinion in the industry suggests that these two factors more-or-less cancel.
   
4. River valley flooding, following episodes of high rainfall, can be exacerbated by engineering work on river channels (mainly channel straightening). Insurance losses will be higher where building development has been permitted on floodplains. It appears likely that, due to these two factors, the exposure of the industry to high volumes of claims arising from flood damage has increased.

The size of insurance claims is related to factors such as the wealth of the population and the value of the pound. Claims for damage due to subsidence following the 1976 drought would have been much smaller than following the 1995 drought, irrespective of the relative severity of the two events, because people had fewer possessions and because the pound was worth more. To allow for the changing value of the pound, we have standardized the claims data by the Retail Price Index.
Subsidence of building foundations is caused by shrinkage of clay soils due to drying. However, the correlation between summer (June-August) rainfall and subsidence claims is low. Inspection showed that the highest correlation is between claims and rainfall between April and September.
The principal causes of claims due to major weather perils are wind storm, freezing conditions and flooding. It is therefore difficult to find a single weather variable to correlate with this indicator.

Change over time
Subsidence claims are greatest when it is dry, as in 1976, 1989, 1990, 1995 and 1996. However, claims were surprisingly low in the severe drought year of 1976 relative to later dry years, presumably because of changes in the quality and value of housing. Claims peaked in 1989-90: the equally severe conditions in 1995-6 led to a much more damped response in claims, peaking in 1998 and dying away gradually in the following years . This is presumably due to changes in the way in which insurance companies handle claims, and also because the housing stock is gradually being made subsidence-proof, either through repairs or by improved building standards in new housing.

Damage due to 'major weather perils' shows clearly the influence of the severe gales in 1987 and 1990. There have been no major wind storm events since 1990, and this is clearly demonstrated in the record, which in non-windstorm years is primarily a response to flood claims and burst pipes. Since 1994 there has been a gradual upward trend in the value of settled claims. The occurrence of a spell of freezing conditions has the capacity to push up the level of claims from a background £250 million to, in 1996, over £500 million. This was primarily due to freezing weather in December 1995 in the North-west and Scotland, but is small compared to the £1900 million (at 1996 prices) claimed in response to the 1990 storms.

It is clear that the major climatic determinant of large fluctuations in this series is gale damage. Thus future trends will largely be in response to any changes in the frequency and/or severity of wind storm. Climate models give conflicting evidence with respect to future patterns of storminess over the UK.