This year's nine-month dry spell is a record in weather statistics. But to insurers it could mean a sharp rise in subsidence claims. Insurance Times asked claims specialists whether this would lead to 2003 being classed as a subsidence 'event year'
The subsidence specialists
Tony Boobier - Building services director, Capita Insurance Services
Rob Sharpe - National building services manager, Crawford & Co
Gary Strong - UK subsidence director GAB Robins
John Wickham - Head of property claims Norwich Union
Has the frequency of subsidence claims changed since this time last year? If so by how much?
Tony Boobier: We are currently seeing up to a doubling of workload, particularly in the clay belt, as a direct result of tree-induced clay shrinkage.
Rob Sharpe: Yes, most certainly. The long dry summer and the ongoing dry weather has resulted in a substantial increase in claim volumes by as much as 400%. From mid-August onwards the claims came rolling in and have not let up since. The last time we saw this volume of claims was the event years of 1995/1996.
Gary Strong: New claims notified to ourselves are up generally by about 250% on the same period last year, after stripping out any increase solely due to new clients intake whom we were not working for last year.
John Wickham: For the majority of this year, we have seen an average number of subsidence claims, although they increased from mid August and peaked in mid-October. Late summer/early autumn is typically the time when subsidence claims peak anyway. Overall for 2003, we do expect claims to have increased this year, although we would not classify it as an event year.
Does this amount to an event year?
Boobier: There is no definition of an event year, but this is usually taken to be 2.5 - 3 times normal workloads. Adopting this as a measure, 2003 is not an event year.
Sharpe: The term event means different things to different people and it has never been defined. It is an emotive word that can result in a distorted picture being given of what is actually happening. Yes, we have had a substantial increase in workflow as an industry, but whether 2003 overall will have substantially higher claims compared to previously will depend on the next month or so.
Strong: At the moment, we do not believe this to be an event year. While the numbers are up over the past few months due to the dry summer, it has to be remembered that at the beginning of the year, and for the first six months or so, numbers were actually down on previous years, so overall for the year it is not so dramatic as one might think.
Wickham: No, the increase is within our expectations.
What factors have to be taken into account in assessing whether or not an increase in claims amounts to an event year?
Boobier: The simple criteria is that of claims volumes. However, a better interpretation could be that of insurers' potential financial liability. We might define an event year if insurers outlays are likely to be doubled or trebled. This means that the cost of claims is as important as the volume. We know that reopened claims tend to be more expensive than new claims, so the proportion of reopened claims is important. Market data shows a relatively larger proportion of reopened claims than the industry should be comfortable with, as a result of claims settled in the mid 1990s based on tree management alone, which has not been kept up.
Sharpe: The industry has no defined measure of this and different insurers look at it in seperate ways. The dry weather, lack of rainfall and substantial increase in claim volumes tell us that this year is unusual and can be regarded as 'an event'.
Strong: A whole host of parameters come into play in deciding whether or not it is an event year. These include the duration of the dry weather, the duration of a significant increase in claim notifications; the timing of the increase in claims notifications and the physical site conditions.
Wickham: We try to avoid the term event year as customers can become concerned about their property and the availability of cover for subsidence. Subsidence claims frequency fluctuates and insurers have been prepared for an increase in frequency. A true event year is represented by a significant increase (at least threefold) in claims over the year and we have seen a much lower increase.
What special provision is your organisation making to deal with any increase in claims?
Boobier: Like most companies, surge plans are in place and have been activated. At Capita, uniquely we are able to provide capacity from entirely within the group, rather than subcontracting. However, the test is not around simply being able to attend the initial inspection, but to continue to manage existing work in progress, and to manage this surge of new work downstream. This is best done by avoiding external subcontracting.
Sharpe: We have taken many provisions to continue to deliver a quality product even when allowing for the rise in claim volumes. We still regard this as stage 1 in our surge plan that we review each year. Measures such as weekend working, overtime in the national subsidence unit and movement of field staff have been taken. Temporary staff have been employed and additional professional resources have been called on. And we did recruit heavily over the summer.
Strong: The majority of our claims are in-house engineer project managed,but we still have a large field force of surveyors and engineers. Our surge planning includes temporary secondments of professional staff from other parts of the country, weekend working and the use of our exclusive database of panel engineers all at pre-agreed fee scales.
Wickham: Because subsidence tends to be localised to specific areas, our loss adjusters have been able to cope with the increase by moving staff from areas that have not shown an increase in subsidence claims.
Do you see the weather events of 2003 having any long-term effects on the property insurance market?
Bobier: Absolutely. Although 2003 is not an event year, it should be a sufficient frightener to make the industry think harder about its current strategy toward subsidence claims. The industry cannot simply sit back and wait for claims to come in through the door, but rather try to anticipate damage and manage the risk, and also manage customers expectation about levels of damage which are not structurally significant.
Sharpe:Yes. I see insurers reviewing their policy cover and increasing excesses that have remained static for many years. I also see insurers being far more proactive in dealing with trees near buildings and encouraging insureds to consider tree maintenance, as most claims this year are related to trees and, had more maintenance been done, substantial claims would have been avoided.
Strong:Not at the moment. Most insurers plan for an increase in subsidence claims occurring over the summer. In any year we can expect to see the biggest volume of subsidence claims coming in during late August through to October. Insurers know this will occur as it does every year and rate their policies accordingly. If there were a significant level of damage over a long period such that average indemnity costs soared, there might be some shift in the property insurance market pricing, but I don't see that.
Wickham: So far in 2003 there have been no significant weather events so there should not be an overall increase in premiums as a result of the increase in subsidence claims.