Cracking up

Subsidence is a major issue for most insurers, especially as most buildings develop cracks at some time during their life. Rectifying the damage to buildings caused by subsidence cost UK insurers £364m in 1999.

A climate as unpredictable as that in Britain does not help: constantly changing temperatures can have an impact, causing buildings to expand and contract. The most serious form of cracking, though, usually stems from movement of a building's foundations. In the UK the major cause of this is the shrinking and swelling of clay soil. When it dries out, this type of soil can shrink by anything up to 20%, and can cause substantial movement in buildings with shallow foundations.

The houses that are most likely to suffer foundation movement are those built between 1920 and 1970, but Victorian and Georgian dwellings can also be affected.

Britain's house owners are keener than most to get the cracks in their buildings investigated. In a report for the Association of British Insurers (ABI), Richard Radevsky, technical director of Resolve International, researched attitudes to subsidence in other countries. Visits were made to Australia, South Africa, the United States and France.

Radevsky says that in Australia there is a much more relaxed attitude to subsidence. People are prepared to buy houses with cracks in them, and banks will give mortgages for them.

Tolerance of cracks in buildings was also found to be higher than in Britain in the other countries surveyed. The report found that in many cases small cracks were not covered by insurance and were repaired by householders as part of normal decoration. Insurance policies overseas often did not cover subsidence. In the UK it has been a common part of household insurance policies since 1971.

Trees not always to blame
This insurance cover goes a long way to explaining the British attitude to subsidence. A surveyor doing a purchase survey will discover a small crack in a house and, to make sure there is no come back on him, will draw attention to it. The building society will then be less inclined to give a mortgage on the house and the potential buyer pulls out. Hence any householder looking to sell will pay attention to cracks in his building with a keen eye.

Trees near properties are often viewed with suspicion as being likely to cause subsidence or to have already caused it. But Ian Murat, principal consultant with arboriculturalists ACS Consulting says that 90% of the trees in this country do not cause any problems at all. There are 101 other things that can cause a building to crack.

Murat says there has been a tendency to call in tree surgeons to cut trees down without first establishing if the tree was indeed the cause of the subsidence. This is an easier option than trying to prove a tree is causing subsidence, a process which might take a number of months.

He concedes that attitudes have improved and claims are now dealt with more scientifically, but he stresses the need for each case to be examined on its merits. Everything is site specific and has to be dealt with that way, he says.

But novel ways of dealing with troublesome trees do not always work. Radevsky recalls a case where a distant relative of the Royal Family was against having a large tree that was causing problems cut down. Instead, a sophisticated watering system was installed which switched on sprinklers when the ground dried out past a certain point.

Radevsky says: "This was fine when the weather was wet, but in a drought there was not enough water available to do the job. You need vast amounts of water to make a difference. In theory though, it is a nice idea."

The best weather from an insurer's point of view, says Jim Lincoln senior household underwriter at Norwich Union, is a moderate winter and a nice damp summer with no extremes of temperature.

The weather in the 1990s led to loss adjuster Crawford & Company setting up a dedicated Subsidence Unit. Following the rise in the number of subsidence claims in 1995/96, research was carried out among the company's customers to find out what they really wanted. The unit was set up in 1999.

Robert Sharpe, head of subsidence at Crawford & Company says: "The unit was something that had its origins in the peak years, but it has taken several years to do the research." He says that subsidence claims currently take fourteen or fifteen months to complete. The traget is to reduce this period to between twelve and fourteen months.

He adds that the Subsidence Unit tries to evaluate the likely basis of the claim before contacting the householder. Details can be obtained from looking at the geology of the area where the house is located. This will give an idea as to whether the claim is likely to be clay-related, or whether there is likely to be a different cause, such as water leaking into sand or gravel.

This geological information, added to further information from the house owner, will help the Subsidence Unit decide whether or not to send out a site manager. Sharpe says that in 92% of cases the decision taken has eventually proved to be the right one.

Changing attitudes
Royal & Sunalliance also used a quiet period for claims to rationalise the way it deals with subsidence. A re-engineering of its subsidence business began in 1999. The number of suppliers it uses has been reduced to fewer than 50, and it has a force of claims handlers operating out of six centres nationwide. The technical claims unit desk and regional subsidence unit field services were combined and a best practice document published. The company also recruited a qualified arboriculturalist and pledged to plant a new tree for every local authority tree that had to be cut down for causing problems.

Current industry thinking on dealing with subsidence can be summed up by Radevsky. He says that, in the early 1990s, surveyors interpreted their brief to take the house and do the work necessary to make sure that it would never move again. Now, he says, the house is restored to its previous state, and the subsidence risk is allowed to remain at a reasonable level.

ABI agreement
Householders with subsidence claims who have changed their insurer are covered by the Association of British Insurers' agreement on the handling of subsidence claims.

Introduced in 1994, the agreement sets out the responsibilities of current and previous insurers when dealing with claims. It identifies procedures for three different situations.

Any claim which is notified within eight weeks from the date when the current insurer assumed risk will be dealt with by the previous insurer.

Claims made one year or more from the date when the current insurer took on the risk will be dealt with by the current insurer with no contribution from the previous insurer.

If a claim is notified between eight weeks and one year of the new insurer assuming the risk, the claim will be dealt with by the insurer which was notified of the claim. The cost of settling the claim is then shared equally between the two insurers.

The agreement relates to domestic properties in the UK, Isle of Man and the Channel Islands where there has been a change of insurer, but the householder remains the same.

More than 70 insurers subscribe to the agreement.