At a glance
- There has been a large upsurge in escape of water claims, but a Zurich study has found that more than 60% of these could have been mitigated or prevented
- Escape of water is now a bigger risk for insurers than fire or burglary, with newer buildings and high-rise residential blocks tending to cause some significant losses
- Water damage is now the number one source of property claims for owners of hotels, office buildings, retail establishments and other commercial structures
Damage caused by escape of water is a bigger risk for insurers than fire or burglary. According to the Association of British Insurers, escape of water claims are costing UK insurers £2.5 million a day, or nearly £1 billion a year.
Escape of water claims can easily run into six figures for residential properties, which tend to see the vast bulk of incidents. For example, a leaking washing machine in one Londoner’s apartment spread to downstairs flats, resulting in more than £150,000 worth of damage. High-rise residential blocks tend to exacerbate any problem as leaking water can then seep into many apartments.
Other examples of claims by Zurich customers have involved causes such as a corroded pipe in a hot water tank, and a slow leak in a water line, each resulting in around £400,000 worth of losses.
Escape of water from commercial properties can be particularly severe, too, and can run into seven-figure claims. There has been a big upsurge in the number of these claims in recent years. Water damage is now the number one source of property claims for owners of hotels, office buildings, retail establishments and other commercial structures.
Difficult to detect
What often starts out as a small, undetected leak, can quickly spread down through a building, travelling the route of least resistance and at a great distance from its original source. This makes detection extremely difficult and means the source can often come from neighbouring properties.
The damage escape of water can cause is just one part of the problem. Business interruption costs can also constitute a large proportion of a loss, as buildings are unable to be used whilst drying and repair work is undertaken.
The most common causes of escape of water are from burst pipes and water tanks; leaking domestic appliances, such as washing machines and dishwashers; overflowing baths and showers; and radiators.
And it is a risk that is likely to increase. While property owners are now much more aware of the potential problems of escape of water, insurers are not seeing a reduction in claims, because of growing opportunities for escaping water, particularly in modern properties.
The Office of National Statistics reveals that in 1970 just 30% of UK homes were fitted with central heating; today, that figure is closer to 95%. Similarly, just 65% of households had a washing machine in 1970; today, more than 95% of homes have one. Today’s high-tech residential and commercial appliances – washing machines, refrigerators with ice machines, coffee machines, water coolers, etc. – also require more sophisticated plumbing hook-ups, and, if installed wrongly, can cause leaks.
Water damage can occur at any point in the life of a building, but typically, buildings that are more than 20 years old, or are high-rise with multiple tenants or units – and subject to an amount of wear and tear – are more likely to be at risk of incurring water damage losses.
In newer residential blocks, problems can occur when the water supply is turned on for the first time and household appliances are not connected correctly, or shower doors are not fitted properly, which may then be duplicated in every single apartment – adding significantly to potential losses.
Newer buildings may also use construction materials other than the traditional concrete and steel, such as concrete forms, modular assemblies and engineered timber. Some of these newer materials are not always installed to the standards that have evolved over time with concrete and steel installations, or have the cladding necessary to protect from water seepages.
“Once you know that you have a problem, whether a building is old or not, it is very difficult and expensive to retrofit – one customer of ours recently had to redo pipework through a disused lift shaft, which cost millions,” says Jonathan Scotcher, Underwriting Manager for Real Estate at Zurich.
Christina Wesley, Zurich’s Real Estate Claims Account Manager, adds: “Another issue, particularly in new builds, is that all the plumbing is now behind tiled walls and it is not easily accessible. Whole bathrooms and kitchens may need stripping out if there is a problem.”
Impact on portfolio performance
Ongoing problems/claims could have an impact on premiums, even restrictions which could significantly impact on asset and portfolio performance for real estate customers.
Escape of water incidents can also lead to other losses – for example, the electricity supply may be disrupted, leaving the property without power or even resulting in a fire. Businesses could find that electronic equipment such as computers have been damaged and important data lost, with only the slightest amount of water damage.
Knock-on impacts are often underestimated, with property owners often underinsuring on the potential cost of damage. Unseen water damage could affect the structural integrity of a building, and after the drying-out period, cracking, warping and the destabilisation of internal fixtures and fittings such as electrical wiring, boilers and plasterwork, is also common.
Assessing the risks
A Zurich study has found that more than 60% of water damage claims – involving wear and tear, and human error – could have been mitigated or prevented.
So, while there is no guarantee of preventing an escape of water incident, undertaking a thorough risk assessment will help identify the key risks, so that measures for loss prevention and mitigation of damage can be put in place.
As well as assessing the age of a property and type of construction materials used, attention should also be paid to pipework and its location, and it is vital to regularly maintain and check the integrity of joints. Plant or boiler rooms can bring additional large volumes of water into a building, and any leaks could result in extensive water flow through multiple floors, particularly if they are located on the top floor or roof.
Summary of the main issues
- The main causes of escape of water are burst pipes and water tanks, leaking washing machines, dishwashers and radiators and overflowing baths and showers
- Escape of water applies to both modern buildings and older properties
- High-rise residential blocks tend to exacerbate any escape of water problems
- Ongoing issues can have an impact on premiums
Additionally a number of devices on the market can help provide further protection against water damage, such as passive leak detectors, water flow sensors and more sophisticated active leak management systems, which can shut off a leak when it is detected.
The drive for taller buildings, resulting in water needing to be pumped under considerable pressure over long distances, has also increased the importance of installing adequate pressure relief valves. Over-pressure is a real problem, with water finding the point of least resistance, which is often poorly tightened joints, or joints which have worked loose.
Human error, particularly if coinciding with extended periods of non-occupancy, can also increase the risk of an escape of water. A window left open or a dripping tap can have devastating effects, and the longer a leak is left undetected the further damage can spread.
Property owners should mitigate this risk by making tenants aware of potential pitfalls. In some instances, measures such as making residents liable for excess payments if they are at fault for the escape of water, in a bid to reduce incidents and claims, could be considered.
Brokers discussing risks with customers should warn that while water damage can often appear minor, it can incur many hundreds of thousands of pounds worth of structural, operational, reputational and financial losses for property owners, unless it is properly addressed and has adequate cover in place.
For more information please speak to your local Zurich contact.