At a glance
- Escape of water claims account for 31% of property claims
- The Get It Right Initiative (GIRI) has the aim of reducing errors and mistakes within the construction industry
- Zurich, in conjunction with GIRI and Weightmans, presented a webinar that brought together insurers, lawyers and construction specialists to understand how the persistent impact of escape of water can be tackled
Construction projects, in all their forms, are rife with risk. And by and large, these are successfully mitigated through various pieces of health and safety and construction legislation.
But while the more obvious risks such as fire and physical safety are usually front of mind, there is a growing, almost hidden threat that is having a significant impact on the sector.
Escape of water claims may not have the headline-grabbing potential of a site fire, but the fact is they account for 31% of all building claims and, according to the Association of British Insurers, cost around £930m in claims payments annually.
It is a situation that has created increasing alarm among the country’s insurers for the best part of a decade. Not only is the frequency increasing, the average cost of these claims soared by over 50% between 2014 and 2018 which is starting to have a material impact on the construction sector.
As claims costs increase, insurers are withdrawing capacity which in turn increases premiums; more and more restrictive exclusions are creeping into policy wordings; and deductibles are increasing in line with claims frequency and cost.
But that is just the starting point for the impact on construction. Escape of water incidents can delay delivery of a project by as much as a year, creating downtime which few firms can afford.
The solution to the problems seems to lie, as is often the case, in greater and closer collaboration with the Construction Industry and a real desire to want to improve construction standards. The Get It Right Initiative (GIRI) has the aim of reducing errors and mistakes within the construction industry. With our 50+ members from the construction industry, Zurich proactively joined this initiative and is currently the only insurer involved.
To help address the escape of water issues in the industry, Zurich, in conjunction with GIRI and Weightmans, presented a webinar that brought together insurers, lawyers and construction specialists to understand how the persistent impact of escape of water can be tackled.
To bring the issue to life and highlight how this issue impacts all parties involved, Matthew Porter, Executive Adjuster – Construction Claims at Zurich, took the audience through a series of examples of claims.
In the first, the construction of a mixed-use tower, valued at £100m, experienced eight escape of water claims totalling £8.5m with one single claim coming in at £5m. The cause of seven of those claims was poorly crimped water pipes that burst under pressure. The contractor had to pay eight separate deductibles totalling £200,000 as well as £445,000 in idle time and liquidated damages, which were not covered by insurance.
Next, Matthew Porter turned to a £500m residential development that experienced multiple escape of water claims which cumulatively cost £3.5m. The project was at the snagging stage but there were a series of leaks during testing which cost the contractor well over half a million pounds in deductibles and saw that deductible increase from an initial £5,000 to £500,000 as the claims continued to come in.
Finally, he brought in the case of a residential project, valued at £8bn, which had a large escape of water claim that settled for £14m. This was down to leaks caused by corrosion, which in turn resulted from a combination of radiators that had not been properly emptied and cleaned after testing and a failure to implement a proper water treatment regime for the heating systems. The cost to the contractor in downtime, deductibles and uninsured losses? £32m…
As he pointed out, insurance can’t and won’t cover everything, so it is in everyone’s interests to keep these incidents to an absolute minimum and as his colleague, Robert Innes, a Senior Construction Risk Engineer at Zurich pointed out, the solutions are actually quite straightforward.
“The root cause is mainly pipes not inserted to the correct depth or not being crimped properly,” he said.
“Workmanship is leading to all of this – a lack of supervision, mistakes missed, a lack of competency and training or inadequate testing taking place.”
He pointed out that the reason water poses such a potent threat, is that it doesn’t just damage the area where the initial problem occurred – it can and will reach multiple parts of a building.
“Most of the examples Matt shared involve joint failure and it only takes one joint to fail to create a massive loss,” Robert explained.
He says that is why it is absolutely vital that projects have an action plan in place to ensure that those on site know how to identify a problem and respond quickly when it escalates.
“Treat this is the same way you would treat a fire risk,” he advised, pointing to resources such as the free best practice guide available from the Construction Insurance Risk Engineers Group (CIREG) or the Zurich Fluid Book which offers practical risk management advice.
He said that protection from escape of water incidents starts with a water management plan, something he said many construction projects did not have.
“Outline who is managing the risk, the details of an emergency action plan and what your quality control and standards and procedures are,” he said.
“This is in addition to your inspection testing plans. We would expect contractors to be able to produce this and there is guidance in CIREG about how to pull one of these together.”
He added that Zurich would also look for the action plan to have been cascaded to all personnel through inductions, with procedures displayed on signs across the site.
“They are simple procedures – what do you do, who do you contact, where are the isolation valves etc.?” he said.
He added that firms should also consider the use of water works permits and water watches in much the same way they would for fire risks: “It just provides you a bit of control – what works are going on, who has responsibility for them and whether they have been closed down properly.”
For Robert, the impact of a growing problem for both insurers and construction projects can be significantly reduced simply by being more aware of the risk, where that risk predominantly lies and adapting existing procedures to keep damage to an absolute minimum. But he was keen to stress that the insurance industry doesn’t have all the answers.
“These are just recommendations and we are always looking for ideas and influence from the construction sector itself,” he said.
For more information speak to your usual Zurich contact.