A rise in escape of water claims is becoming a concern for insurers. According to Aviva, water damage is the second most common cause of loss on building sites and 65% of construction sites suffer water damage at some stage of the build. Implementing strict risk mitigation protocols will benefit construction firms, not only in insurance renewal negotiations, but also by avoiding project completion delays and retroactive action on completed work.
Water leak claims surged 30% in Q1 2021 compared to the same period in 2020 in the UK. According to the Association of British Insurers (ABI), escape of water claims are costing UK insurers £2.5 million a day, which equates to nearly £1 billion a year.
The most common cause for these claims from construction firms is poor workmanship, particularly in relation to push-fit pipework. A significant number of these losses have occurred as projects near practical completion, when the fitting out has already taken place or is nearing its conclusion. This unfortunately results in increased damage and higher rectification costs - especially if the leak manifests over the weekend, when a site is typically vacant.
Suffering a leak on site will not only cause damage and disruption. In most cases, it will also result in an impact to the project programme. This delay in completion could cause consequential financial losses to the owner. Examples of this may be the ability to earn rental income where the asset is to be retained, or selling the completed units when the development is speculative.
The insurance market has adopted a harder stance due to the claims payments made for these types of losses. This has been in the form of both higher premiums and substantially increased water damage deductible levels.
Alongside the hardening insurance market, a collaborative effort from insurance trade bodies is pushing to increase awareness of the help available to homeowners with escaped water issues, and is also targeting improved education and training for workmen.
Insurers have additionally attempted to further mitigate exposure by working with risk engineers to suggest risk management solutions that can also be implemented.
What help is at hand?
One of the key areas insurers have identified is having a comprehensive construction water management plan. This plan should provide the overall approach for water management during the course of the construction, including emergency plans in response to an incident.
The Construction Insurance Risk Engineers Group (CIREG) created a best practice guide entitled ‘Managing Escape of Water Risk on Construction Sites’. Their approach is similar to The Joint Code of Practice on the Protection from Fire of Construction Sites (JCOP), where the objective of the Code is the prevention of fires on construction sites. The CIREG document has been endorsed by the UK Contractors All Risks (CAR) Underwriters Group and is widely credited within the insurance market, bringing tangible benefits on premium and excesses where a compliant plan is utilised.
Whilst it is imperative that careful consideration should be given to design, installation, and testing and commissioning standards, some advances in technology can also prove invaluable in mitigating risk.
Measures such as monitoring water flow and automatic flow detection shut-off systems should be contemplated at an early stage if their inclusion is feasible. Certain insurers will now actually impose a requirement for installation of such shut off systems, especially for high rise residential projects.
Benefits of robust water risk management are clear for the purpose of both insurance procurement and commercial protection. Should you wish to discuss best practice for water risk management in more detail, please contact Emma Jahn or Sam Baker.