This article first appeared in Risk & Insurance May/June 2022 Issue.
When a building suffers water damage, many would think heavy rain or a hurricane was the primary cause. But not all water damage is due to major storms.
In fact, according to The Hartford, about 75% of all real estate water damage losses are caused by the accidental discharge of plumbing, HVAC systems and appliances. These losses aren’t just limited to claims for structural damage. Loss of income, the expense to rebuild and the cost of relocating residents during any building repairs can all add up.
These costs can be reduced, however, if a commercial property owner employs a water mitigation plan, especially one that uses Internet of Things (IoT) technology. Water sensors, shut-off valves and other tools can detect when a leak occurs, enabling someone to step in and assess — or maybe even prevent — the damage.
“It’s important to take proactive measures to avoid water damage through a water damage prevention program,” said Caleb Woodby, large property underwriting officer at The Hartford. “It really helps to mitigate the loss.”
Common Causes of Non-Cat Water Damage
A number of factors can cause buildings to suffer from water damage. Compromised building envelopes, bursting pipes and other factors can cause water to infiltrate a building and lead to mold and other forms of damage. Poor workmanship, improper installation and defective or substandard materials can also be part of the root cause of water damage.
An internal review of the five years of loss activity from 2015-2020 by The Hartford found three leading causes of water damage: Accidental water discharge, freezing pipes and sprinkler leakage.
- Accidental water discharge accounted for 54% of claims
- Freezing pipes 23%
- Sprinkler leakage 16%
These losses can be high. Woodby gave the example of a pipe failure on a discharge pipe from a pool that caused thousands of gallons of water to flow down multiple floors of a building before the issue was discovered the next morning.
“The water ran overnight and there was nothing to stop the flow,” he explained, resulting in costly losses.
What Industries and Buildings Are Most at Risk?
Though non-CAT water damage can affect any commercial property, some industries and types of buildings are at higher risk. The Hartford’s internal data reveals that the habitational, health care and hospitality industries have the highest frequency of loss activity from water damage claims.
The number of appliances, laboratories, heating and cooling systems and related piping systems in residential, condominium, hotel, public entity and commercial high-rise buildings mean that these items alone produce many of the highest costing water damage claims.
“We’re seeing increases in water damage activity for hotels, senior living care condominiums and other residential occupancies,” Woodby said. “We are also seeing water damage in hospitals. Loss activity is more severity driven because even a little bit of water could damage sensitive equipment.”
Certain types of buildings are also at increased risk. More specifically, older and high rise and buildings face a higher-level of non-CAT water damage risk. High rises frequently see non- CAT water damage claims with increased severity due to their vertical risk.
For example, if there’s a leak in a utility room on the 12th floor of a building, water flows downward, damaging multiple floors in the process. If it gets into the walls, the building could suffer mold damage as well. Water intrusion into elevator shafts, electrical bus ducts and other vertical spaces helps accelerate and increase property damage.
“We’re seeing more severity in high-rise buildings,” Woodby said. “We did a loss analysis and we found a direct correlation in the increase of the average losses over time over a five year period as you go up in building height. You can start seeing more water damage severity in buildings with 10 floors or more.”
Older buildings are also at an increased risk. As a property ages, roofs, piping systems and other parts of the building envelope deteriorate, making them more prone to failure. Sources of losses include:
- Roof drainage systems
- HVAC drain pans
- Refrigeration appliances
- Hot water heaters
- Plumbing systems
Remember, these systems need regular maintenance.
“A lot of times there’s a lack of general maintenance for the building and equipment,” Woodby said. “It is important not to lose sight of the fact that these systems age and need to be maintained.”
How a Water Damage Prevention Program Can Reduce Claim Severity
To address concerns related to water damage claims, The Hartford’s Risk Engineering Organization developed a comprehensive Water Damage Prevention Program which includes the use of IoT products. The program uses various technology to detect water leakages before they can cause large amount of damage. The devices include:
- Water sensors
- Flow monitoring systems
- Automatic shut-off switches
- Temperature and humidity monitoring tools
“We’re looking to proactively use this water sensor technology to mitigate those risks,” said Camryn Santos, director of strategy for the IoT Innovation Team at The Hartford.
In most cases, the devices are used to detect water, allowing risk managers to step in and contact the people needed to stop the leakage before it causes too much damage. But in some cases, tools like temperature monitors could detect freezing conditions that may cause pipes to burst before a loss occurs.