Published on November 22, 2022
The drought that started at the beginning of the year is wreaking havoc on homes. Insurance companies have reassessed the costs of damage to buildings caused by the shrinkage-swelling phenomenon of clay soils. It can be compared with 2003, the most expensive year in terms of compensation claims due to drought. The increase in the frequency of these climatic events and their costs puts insurance companies and policyholders under high pressure.
The bill continues to grow for the damage to buildings from the drought. France Assureurs, the association of insurance companies, has revised its balance sheet upwards. The costs of the drought for the year 2022, according to forecasts at the end of October, are expected to be between 1.9 billion euros and 2.8 billion euros. And these numbers could still be revised upwards by the end of the year given the scale of the phenomenon. New areas may experience late drought by the end of the year, adding additional damage to compensate.
The damage to housing as a result of drought episodes comes mainly from the phenomenon of “shrinkage-swelling of clay”. Clay soils tend to shrink as the water content decreases and swell as it increases, creating destructive landslides for buildings. Cracks appear on the facade of the houses, going so far that in extreme cases they make them uninhabitable.
Compensation, complex to unlock
This growing increase in drought costs puts the economic model of insurance under pressure, especially based on the distribution of replacement costs between policyholders. The natural disaster regime, which has covered droughts since 1989 and provides a government guarantee for insurers, may not be sufficient to cope with such an explosion of costs.
On the insured side, cracks in homes are sometimes particularly difficult to obtain compensation for. In order to play the insurance, it is necessary that a decree on natural disasters has been published. Then it must succeed in making the connection between the damage to the house, the drought episode and the period taken into account in the decree. An obstacle course that is sometimes a headache and could suggest that the number of drought-related damages would be even higher…
France Assureurs estimates that 48% of the metropolitan area is exposed to the risk of shrinkage-swelling of clay soils, i.e. 16.2% of the individual houses. Almost 10 million homes are therefore potentially affected. The insurance companies compensate an average of 29,500 damages per year due to drought, for almost 485 million euros.
Increasing tendency towards drought episodes
The drought episode in 2022 is particularly intense. It had to compete with the well-known one in 2003, which had caused 2.1 billion euros in damage. This year the drought started very early. While soil moisture was normal at the beginning of the year over almost the entire territory, drought began to affect certain areas of France as early as February. These areas then continued to spread until they reached the entire metropolitan area in late October.
The year 2022 is nevertheless part of an upward trend that insurance companies have observed. Between 1989 and 2015, drought accounted for 15% of claims related to climatic events. Since 2016, it has reached 24% of the climate requirements. Costs are also skyrocketing. In total, insurance companies have paid out 16 billion euros over just over thirty years (from 1989 to 2021) to compensate victims, but they already expect to see the bill rise in the coming decades due to climate change. By 2050, the costs over the next thirty years could therefore reach 43 billion euros, according to the forecasts of insurance companies, who expect episodes of intense drought every three years during this period.
Arnaud Dumas, @ADumas5