We recently had the local electric company come do some thermal imaging in our house. They bring an infrared camera that looks like a video camera that senses heat.
These photos show a corner of Martin’s room. The visible photo is on the right and the infrared photo is on the left. The blue is cold and orange is warmer. When we moved in a decade or so ago and had blown-in insulation installed. Over time, it settles, and this photo shows a great example of visualizing the settling of the insulation between the wall studs. One of the next house projects is new siding and when we do that we can fix the insulation problem from the outside before putting the new siding up.
What you describe is what has typically happened with blown-in insulation applied in the past, when the blowers used did not have to power to densely pack the insulation. New technology is allowing the new blown-in insulation to be packed in at densities of 3.0 to 3.5 pounds/cubic foot. At this density, it will not settle. Blown-in insulation, made with recycled newspapers, is one of the best, greenest insulations.
You can “back-fill” the settled insulation on your home. Check if this is feasible, since the insulators will have to bring their blowers out, which might not be cost-effective for small amounts.
Here is a link to one provider of blown-in insulation: http://www.nuwool.com.
I have no financial or any other connection with them! I simply like their product.
Also: I suggest adding 2 overlapping layers of rigid insulation before you install the new siding. That way you will really stop all leaks and your heating and cooling (don’t know if you have AC) bills will be drastically reduced.