Water damage: how to stem the flow of devastating claims

03 April 2018

Damage caused by water leaks cost more than GBP 400 million in 2017.* Use simple strategies to cut your risk.

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’s bottom line.

‘Hoping for the best’ is not a realistic approach. A massive 20% 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.

WATER DAMAGE: THE COST

The destruction caused by escaping water amounts to 26% on value of gross claims incurred. Statistically, it tops the ‘peril’ group, and is larger than weather-related claims (20%); fire damage claims (16%) and theft-related claims (13%). Consider the following numbers:

  • GBP 483 million: The amount made in claims between January and September 2017
  • 24%: the increase since 2014
  • GBP 3.9 million a day: the cash amount of water damage insurance claims made.*

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 claims for escape of water and ensuing damage. Contact a specialist construction insurance broker for tailored advice about how water risks could affect your business. Undetected water leaks can cause damage for long periods of time Generally, developers need to be concerned about the following:

  • Poor construction standards. This is an on-going trend rooted in the shortage of skilled sub-contractors
  • Design and build innovations. Concealed pipework is a popular design element; plus modern buildings feature more plumbed devices, including under floor heating and living roofs and walls
  • Pipework issues. These can include: non-capping during testing and commissioning. Poorly put-together pipes. Pipework failures.

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 way beyond the claim stage (and the potential hike in your insurance premiums). Water damage might result in:

Project completion delays, leading to cost increases and reduced profits

A souring of your company’s relationship with its 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 DAMAGAE RISK PREVENTION

A company’s financial manager can be daunted at the prospect of identifying risk flashpoints, and the cost of mitigating them. An initial capital outlay is required, but there’s little comparison between the cost of proactive mitigation (usually in the low thousands) and the huge size of possible claims, which can be multiple millions.

The government’s Enhanced Capital Allowance (ECA) scheme through the Carbon Trust promotes products that encourage sustainable water use.

It rewards businesses for investing in them by allowing them to claim the cost of the investment in approved products against their profit in that tax year. Information on applicable products, systems and technology on the Water Technology List as well the application process can be found at www.watertechnologylist.co.uk

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
  • Implementation of advice on the CIREG best practice document, The Avoidance of Water Damage on Construction Sites
  • 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.

*Source – Zurich Insurance Company

For further information on water damage and how to mitigate the risks, please call Louise Mercer, Account Executive on +44(0)20 7528 4470 or email louise_mercer@jltgroup.com

This blog is compiled for the benefit of clients and prospective clients of companies of the JLT Specialty Limited (“JLT”). It is not legal advice and is intended only to highlight general issues relating to its subject matter; it does not necessarily deal with every aspect of the topic. Views and opinions expressed in this document are those of JLT unless specifically stated otherwise. Whilst every effort has been made to ensure the accuracy of the content of this document, no JLT entity accepts any responsibility for any error, or omission or deficiency. If you intend to take any action or make any decision on the basis of the content of this document, you should first seek specific professional advice. The information contained within this document may not be reproduced and nothing herein shall be construed as conferring to you by implication or otherwise any licence or right to use any JLT intellectual property.

contact Louise Mercer
Account Executive louise_mercer@jltgroup.com