The study also indicates that sustained heat, coupled with floods and heavy rainfall, may lead to additional financial burdens for insurers, with subsidence-related insurance costs surpassing £1.9 billion within the next decade.
The findings shed light on the substantial impact that persistent high temperatures can have on insurance claims, particularly in the context of the rising occurrence of unusually hot summers worldwide.
Moreover, the study highlights the potential consequences of extreme winter weather events, such as the floods witnessed between 2019 and 2020, which resulted in economic losses of £333 million. If flood management approaches and spending patterns remain unchanged, this figure could escalate to £500 million by 2050.
Mohammad Khan, General Insurance Leader at PwC UK, explained the significance of the analysis: “Our model aimed to quantify the impact of extreme weather on insurance claims. The rise in subsidence cases due to consecutive very hot summers is apparent. With the soil already dry and potential hosepipe bans in place, there is a looming risk of a significant increase in subsidence. This phenomenon causes the ground beneath buildings to sink, potentially pulling down their foundations.”
Khan further revealed that property damage claims associated with fires originating from nearby open areas, subsequently spreading to homeowners’ gardens and resulting in fence, garage, and decking fires, have also been observed. Extreme weather events of this nature may prompt insurers to take drastic measures, including reevaluating the cost-benefit of providing coverage in certain circumstances. Consequently, coverage for some risks might become unaffordable or simply unavailable for homeowners residing in the most severely affected regions.
The study underscores the undeniable influence of ongoing climate change on the insurance sector, as insurers grapple with the management and absorption of associated risks. According to PwC’s modeling, the potential costs involved could determine whether households receive essential coverage or not, emphasizing the critical role of scenario modeling in comprehending climate change losses and mitigating their impact on future insurance costs and availability.
PwC based its analysis on the higher range of future pathways outlined in the Shared Socioeconomic Pathways 5-8.5. The study’s key findings include:
- Economic losses from winter flooding between 2019 and 2020, estimated at around £333 million, could surge to nearly £500 million under the projected climate change scenario. This estimate assumes that flood management approaches and expenditure will remain unchanged, without accounting for inflation.
- Insurers’ expected costs related to subsidence may reach £1.9 billion by 2030.
- The average economic cost of flooding in the UK could increase by up to 18% for fluvial flooding and 43% for coastal flooding by 2050.
These projections serve as a stark reminder of the pressing need for proactive measures to address the rising risks associated with climate change, as they have the potential to significantly reshape the insurance industry’s approach to risk management and coverage provision.
Source: PwC
