How to help clients mitigate water damage risk

With water damage claims due to infrastructure failures costing the industry much more per year than natural catastrophes, brokers need to be more proactive in helping clients understand coverages and risk mitigation strategies.

Infrastructure and plumbing related water damage is one of the biggest challenges for property managers, yet brokers often struggle to convince clients to purchase coverage or invest in risk mitigation, Chris Della Mora, senior risk consultant with HUB International’s Toronto office, told Canadian Underwriter.

“The potential for water damage isn’t often seen as a high risk for many clients. When someone thinks about insurance coverage, images of coastal flooding, storm damage, wildfires and other large events typically come to mind,” Della Mora said.

But infrastructure water damage is more a case of frequency versus severity.

“There is a much higher frequency of claims when it comes to water damage than other claims; however, the severity of the claim is much lower. So although the damage is likely to be less with a water damage claim then other claims, the probability is substantially higher.”

Another common misconception is that aging infrastructure leads to the most water damage. “Relatively modern systems can also fail due to improper installation, poor product quality or connection types and the effects of water chemistry on plumbing systems over time,” Della Mora said. “The type of plumbing system within the building can either mitigate or increase the risk of water damage.”

Understanding exposures

The primary loss exposure for tenants of both residential and commercial rental properties is damage to contents/betterments, Della Mora said.

“Although some owners require tenants to carry full policies covering property and liability, it’s essentially transferring the loss from the owner’s insurance underwriter to the tenant’s.”

Multi-story residential units have specific risks as water damage from higher floors can impact lower floors.

“This is one reason why many large rental complexes actually require tenants to carry full rental coverage,” he said. “This protects those tenants impacted by a water loss on lower floors by not requiring them to run a claim through their policies. Rather, the claim for all units impacted will run through the policy of the tenant where the leak originated.”

What to tell your clients

Della Mora offered five ways for building owners to lower their risk of water damage and protect their property:

• Perform a cost-benefit analysis. Determine if remediation is the right course of action: whether that’s a complete replacement of all components, replacement of fastening systems, replacement of fittings between plumbing types or all of the above. Understand the strengths and weaknesses of all the different plumbing systems.
• Develop a water damage mitigation plan. The larger the damaged area, the more expensive the repair. Every additional square foot of damage results in more time, materials and manpower to restore it.
• Perform regular maintenance. Routine inspections of plumbing infrastructure are important and should be a part of renewal applications to insurers, especially when there have been previous claims.
• Obtain regular inspections. Damaged boilers and other machinery can cause extensive water damage.
• Increase the deductible. This can work with well-maintained buildings that have a lower overall risk threshold.

Feature image via iStock.com/thefurnaceroom