Abstract
The economic consequences of drought episodes are increasingly important, although they are often difficult to apprehend in part because of the complexity of the underlying mechanisms. In this article, we will study one of the consequences of drought, namely the risk of subsidence (or more specifically clay shrinkage induced subsidence), for which insurance has been mandatory in France for several decades. Using data obtained from several insurers, representing about a quarter of the household insurance market, over the past twenty years, we propose some statistical models to predict the frequency but also the intensity of these droughts, for insurers, showing that climate change will have probably major economic consequences on this risk. But even if we use more advanced models than standard regression-type models (here random forests to capture non linearity and cross effects), it is still difficult to predict the economic cost of subsidence claims, even if all geophysical and climatic information is available.
Highlights
For the insurance industry, climate change is a challenge since risks are increasing, in terms of frequency and intensity, as discussed in McCullough (2004), Mills (2007), Charpentier (2008) or Schwarze et al (2011)
Using data obtained from several insurers, representing about a quarter of the 5 household insurance market, over the past twenty years, we propose some statistical models to predict the frequency and the intensity of these droughts, for insurers, showing that climate change will have probably major economic consequences on this risk
The increase in number and severity of subsidence claims in the past years has created a need for insurers to better grasp their knowledge of this risk
Summary
Climate change is a challenge since risks are increasing, in terms of frequency and intensity, as discussed in McCullough (2004), Mills (2007), Charpentier (2008) or Schwarze et al (2011). Ionita and Nagavciuc (2021) studied the temporal evolution of three 20 drought indices over 120 years (the standardized precipitation index – SPI, the standardized precipitation evapo-transpiration index – SPEI, and the self-calibrated Palmer drought severity index – scPDSI) This updated study regarding the trends and changes in drought frequency in Europe concluded that most of the severe drought events occurred in the last two decades, corresponding to the time after the publication of Lloyd-Hughes and Saunders (2002), for example. Naumann et al (2021) shows that (in Europe), drought damages could strongly increase with global warming and cause a regional imbalance in future drought impacts They provide some forecasts, under the assumption of absence of climate action (+4◦C in 2100 and no adaptation), annual drought losses in the European Union and United Kingdom combined are projected to rise to more than 65 billion e per year compared with 9 billion e per year currently, still two times larger when expressed relative to the size of the economy. 45 in Spain, it is possible to insure rain-fed crops against drought, as discussed in Entidad Estatal de Seguros Agrarios (ENESA) (2012), but in most country, drought coverage is only concerned with respect to agricultural (crop) insurance, as such as frost (see Pérez-Blanco et al (2017))
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