Swiss Re Insurance-Linked Fund Management

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Property damage from drought-induced soil subsidence increasing in Europe


A new study from reinsurer Swiss Re shows that with drought conditions becoming more common in Europe a side effect has been an increase in the incidence of drought induced soil subsidence, resulting in higher levels of property damage. The study suggests that the changing climate will magnify the risk of soil subsidence and a new loss model from Swiss Re suggests that some areas of Europe could see a more than 50% rise in future losses.

Prolonged periods of dry weather, as we’ve seen across large areas of Europe this year, can cause the ground to sink sufficiently for large cracks to appear which can destroy property foundations and in the worst cases cause buildings to collapse. Swiss Re says that climate change will magnify these risks due to factors such as rising average temperatures and more erratic rainfall.

“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 & Specialty Underwriting at Swiss Re.

In France alone, subsidence related losses have increased by more than 50% in the last 20 years, causing around €340m a year in insured losses.

The trend for increasing losses from drought-induced subsidence is expected to increase over time with some areas expected to see a 50% increase in loss potential for the period 2021-2040.

As a weather/climate related risk there are ways that these risks can be covered. Swiss Re suggest that beside traditional indemnity policies alternative risk transfer solutions could provide the answer for drought induced risks. They suggest that parametric covers and index-based insurance could be a viable solution and offer lower administrative costs and quicker settlements.

“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 & Political Risk Management at Swiss Re.

You can download the study from Swiss Re here (in PDF format).

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