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Water damage: how to stem the flow of devastating claims

Damage caused by escaping water is one of the largest causes of developers’ insurance claims. Use simple strategies to cut your risk of water damage.

11/03/2020 · 3 minute read

Use simple strategies to cut your risk of water damage

It’s time to take action against water damage. Claims are on the rise and costs have soared into the multi millions. 

Damage caused by escaping water is one of the largest causes of developers’ insurance claims. It has huge effects on property, plus the revenue loss from business interruption could have huge consequences on your company bottom line.

"Hoping for the best" is not a realistic approach. A large amount of claims on buildings and contents insurance are made due to escaping water damage.  Often, water damage comes at the most destructive - and expensive - period of a construction project: when the building is almost complete and / or recently handed over.  Much of the cost, including the cost of delay, could sit with the developer.

Why water damage claims are increasing

Many factors are contributing to the rise in escaping water and ensuing damage claims. The following are areas of concern for developers:

  • Poor construction standards, due to the on-going shortage of skilled sub-contractors.
  • Changing lifestyle / design trends. Concealed pipework is a feature of popular design elements, more plumbed devices, including under floor heating and living roofs and walls. Water leaks can cause damage, undetected, for long periods.
  • Pipework issues, including non-capping of pipe work during testing and commissioning as well as pipework failures. Poorly put-together pipework, potentially because of condensed deadlines. 

Additional effects of claims related to escaping water

When considering water damage it’s crucial to look beyond the initial damage. Each incident has a ripple effect that goes beyond the claim stage (and the potential hike in your insurance premiums). Water damage may cause: 

  • Project completion delays, leading to cost increases and reduced profits.
  • Affect your company’s relationship with tenants, who might also need to be rehoused, adding to your costs.
  • Reputational risk. With the growth of social media and 24-hour news, reputations have never been more vulnerable.

Water damage risk prevention

Financial managers can be daunted at the prospect of identifying risk flashpoints, and the cost of mitigating them. However, while an initial capital investment is required, there’s little comparison between the cost of proactive mitigation (usually in the low thousands) and the size of possible claims - which can be in the millions. 

Mitigation should be considered in all stages of a development: design, construction and post construction. Insurers will want to understand the damage prevention strategies, and your broker might be able to negotiate a contribution to the mitigation costs from the underwriter. 

It is always a good idea to consider and discuss water damage with your contractors at an early stage. The following methods could be considered initially:

Pre-construction:

  • Add water damage mitigation into the contractors’ tender.

Design and construction stage:

  • Competent supervision is key.
  • Robust quality control and quality assurance.
  • Consider the installation of detection systems, such as flow measure devices and / or technology, such as mats containing leak-detecting sensors that can be placed under pipes.

For more information on the risks of water damage, contact a Marsh construction insurance broker.

 

The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. References to any services, provider or equipment does not constitute an endorsement by Marsh Canada or Marsh & McLennan. Marsh & McLennan Companies do not endorse, recommend, or make representations with respect to any water monitoring services, equipment or service provider.

Gaurav Kapoor

Construction & Surety Practice, Canada

  • Canada

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