Subsidence worries – blame insurance

Finding cracks in one’s house can be very stressful even if they are small. Homeowners leap to ask questions such as:

• Is this the first sign of a worsening structural problem?
• How much is it going to cost to fix and will insurers pay?
• Is the value of our main asset under threat?
• Will we be able to keep our insurance cover?

The first two questions need input from existing insurers and the engineers they appoint. The last two sources of anxiety are what this piece is all about.

The cure for the last two? ??Add the following exclusion to household subsidence insurance clauses:

“This policy does not cover the cost of repairing damage to paint work, wallpaper, plasterwork and other finishes and all fees associated with remedial works of these items”

“What?” - I hear you say. “How does reducing the coverage help reduce anxiety? Surely it will make it worse?” It’s a little complex so bear with me…….

First let’s acknowledge that some subsidence insurance claims are indeed the result of a serious foundation problem that threatens the stability or functionality of a structure. In these cases, very costly remedial work is sometimes justified and owners need insurance to protect them from that cost.

But most subsidence insurance claims result from small foundation movements which don’t threaten the stability or functionality of a structure. Guidance on this is available from the Building Research Establishment (BRE Digest 251 “Assessment of damage in low-rise buildings” ). These movements are, however, very important for the owner because they can have a serious impact on the value of their property. The reason for this is that properties that have subsidence are very difficult to sell. They are difficult to sell because it is difficult to get a mortgage on a building with subsidence. It is difficult to get a mortgage because it is difficult to get insurance. It is difficult to get insurance because insurance underwriters fear that a house which has had a subsidence claim is much more likely to have another claim. Surveyors of properties know what impact the presence of subsidence cracks can have on the value of a property and so are careful to emphasise their presence since they don’t want to have to face a professional indemnity claim against them for missing something that can have a major impact on the value of a property.

Let’s now take a look at what would happen to all that logic if the new exclusion were in place. We can start with the underwriters.

If underwriters didn’t have to worry about paying for plaster repairs and redecorating costs of houses with small cracks, they would not automatically refuse or restrict cover for houses with subsidence. They might ask surveyors to assess any cracks in a building and give an opinion on whether they were structurally important or merely cosmetic requiring only work to plaster and decorations. Most are indeed not structurally important and with the new exclusion would be of no concern to the underwriter. Thus, the property should be insurable on standard terms. If there are no problems obtaining insurance cover, there should be no problems with a mortgage. If there is no problem with a mortgage, the small cracks should have minimal impact on the value of the property. Repairs to small cracks in plaster and paintwork would be handled during redecorations (as they used to be before subsidence insurance was introduced in 1971). ?If there was minimal impact on the value, surveyors would tone down their warnings to prospective buyers. Cracks that indicated a serious foundation problem would however still justify a red flag. Surveyors would be required to use their professional judgement to distinguish between the two.

Many properties that were previously very difficult to insure would become more easily insurable and mortgageable and thus less subject to a drop in value.

So, what about the owner of a building with serious subsidence which does require underpinning and structural repairs? Insurance would pay for the underpinning and structural repairs and would leave walls that were structurally sound but with damaged plaster and decorations. The owner could choose to leave these until the next round of decorations are due. Insurers might decide that with the new exclusion there is no need for a subsidence excess (often ￡1,000).

This is not a cure for every subsidence worry particularly if climate change is going to increase the frequency of droughts which generate foundation movements for houses on shrinkable clay. But it might foster a more balanced view of the significance of cracks which mostly appear in plaster that, after all, has the structural properties of eggshell.

One other potential advantage of a reduction in subsidence anxiety is that the carnage we have seen carried out on our urban trees in the last few decades might begin to abate just when we need the trees most. ?If homeowners, insurers and mortgage lenders can learn to live with small cracks in properties there will be less reason to fell the trees that cause clay subsoils to shrink. The trees will need to be managed but there will be less justification for removing them altogether. As the Sistine Chapel shows us, it is possible to live with cracks in plasterwork for centuries without anxiety. In the face of climate change, if we want to continue to have the benefit of insurance for serious subsidence problems, we may have to get used to living with cracks and seeing them as something to fix when we have our houses redecorated. That was the way things were before subsidence insurance was introduced in UK for free in 1971. 50 years later it is probably worth? considering whether it remains fit, in its current form, for the 21st century. At a time when insurers are pulling back from providing cover for some perils affected by climate change, the modification to the policy wording that has been suggested here may allow them to continue to offer cover for costs associated with serious subsidence for longer than would otherwise be the case.?