Escape of water in commercial buildings and residential properties

Craig Johnson, Real Estate Leader, Manchester

Escape of water (EOW) claims has been an issue for UK insurers for a number of years. An EOW can result from many issues such as a burst pipe, backed up drain or a flood caused by heavy rain. Nearly all buildings are at risk. These claims are consistently one of the most expensive, costing insurers an estimated £1.8m a day¹, and are on the rise.

As a result of the spiralling costs of water damage claims, insurers are applying substantial premium increases and applying higher excesses to premises where there continues to be an issue. Insurers are also demanding more stringent protections – especially for new and repurposed buildings. In fact many insurers are now beginning to be involved at the design and construction stages to ensure protections are in place.

Due to the increased nature of EOW claims, insurers are more so than ever scrutinising how property owners are effectively managing EOW risks. Property owners and developers therefore need to be able to extensively explain how they are addressing this risk when seeking insurance.

Escape of water claims examples

In the commercial sector, EOW claims can easily run to seven figures.² Why you ask? Well, commercial buildings, offices for example, have an increased risk through large heating and air conditioning systems, plus water coolers. The architecture of commercial buildings also contributes to high claims. They often follow a stacking design, so the toilets for example, are often in the same location floor to floor. This means any problem on the top floor can have repercussions in the below storeys. A simple leak therefore can turn into an expensive loss.

Within residential buildings, specifically large multi-tenanted blocks, EOW claims are extremely high. This is in part down to modern methods of construction moving from copper pipes to the cheaper alternative methods and less reliable methods such as plastic push fit pipes. Residential properties also boast more water appliances than ever before. Many now have ensuites or multiple bathrooms. With that comes an increased risk. And with the development of high-end luxury residential towers within the private rent sector, and the emergence and continued growth of build to rent schemes, properties take this a step further with wet rooms, saunas, hot tubs, swimming pools and underfloor heating. All of this creates more and more complicated plumbing systems and pipework running throughout a building. This, combined with the pipes being constructed using less reliable materials than in the past are the primary factors to increased EOW claims within residential buildings.

In addition, much of the plumbing work is hidden from view and therefore more difficult to get to in order to locate a leak. Often the initial damage sustained by the leak is far outweighed by the trace and access cost of finding the leak. It is therefore prudent to understand the full scope of insurance cover for trace and access costs as many property insurance policies restrict this cover.

Prevent escape of water in your property

Help minimise the risk of an escape of water claim by:

1. Having a robust process in place to check the competency of contractors.
   
   
2. Pressure testing plumbing systems.
   
   
3. Conducting regular inspections on cold water tanks and pipework - especially during the winter months when pipes can freeze.
   
   
4. Maintaining plumbing and heating systems and checking for any signs of failure (sealant around showers, dripping taps etc.).
   
   
5. Investing in water leak detection equipment and technology.
   
   
6. Implementing fail-safe systems. They can be installed to isolate leaks and systems can be retrofitted. LeakSafe is one option to consider.
   
   
7. Ensuring all residents know where their stop cocks are and encouraging them to report leaks when first detected could make the difference. Make sure they can turn it on and off.
   
   
8. Checking unoccupied properties regularly. You may even want to disconnect water supplies from the source. Your insurance policy may not cover escape and freezing of water if your property is left unoccupied for a certain length of time.

Combat escape of water and help secure competitive insurance premiums

EOW claims can cause considerable disruption to projects, owners, tenants and portfolios which is ultimately paid for by insurers at the point of a claim. Prevention is always better than cure. If owners can demonstrate effective leak protection, insurers will endeavour to underwrite good value insurance policies. Those that can’t will face higher premiums and/or large excesses for flood and EOW. By adopting some of the simple tips above, and engaging and being transparent with your insurance broker, you’ll give yourself every chance to secure competitive insurance premiums in this challenging market.

Read more from Craig Johnson

• What is the difference between joint names and composite insured construction insurance?
• Why cladding is unsafe and who will be left to foot the bill

^{Sources
1. dasa.co.uk/news-events/1587/
2. zurich.co.uk/news-and-insight/the-risks-of-escape-of-water-in-commercial-buildings}