Escape of Water

As escape of water claims rise, brokers can mitigate SME risks

Dan Edge, Portfolio Manager for SME Property Owners insurance at Travelers, discusses the significant risk of escape of water in mixed commercial and residential properties – and how brokers can help clients minimise their exposures.

As demand for rental property in the UK continues to escalate, owning residential and commercial properties can be an appealing investment for your clients. But problems may arise – and something as simple as a frozen pipe or a broken seal on a washing machine can generate an insurance claim that quickly chips away at an owner’s peace of mind. Water leaks are often hidden – and a relatively small leak in a flat above a commercial shop could quickly escalate, causing thousands of pounds of damage to the business below.

That’s especially true for owners of small- to medium-size (SME) properties. One big concern in the market right now is the escape of water (EOW) in multi-occupancy residential properties, as well as in mixed-use properties such as commercial retail with flats above. A pipe or connector that leaks in one flat can quickly travel through multiple floors and ceilings to other flats and commercial properties, leading to a claim worth hundreds of thousands of pounds.

Such problems have become more severe over the past 10-20 years amid the rise in apartment living and the increased use of water in apartments. Fifty years ago, a flat would be lucky to have a single bathroom. Today, newly constructed flats often include more plumbing for additional bathrooms and appliances, as well as amenities like underfloor heating, so there are many more potential points of failure.

According to the Association of British Insurers, EOW claims have been climbing in recent years for both residential and commercial buildings. In 2023, claims cost £1.04 billion, a 25% increase over claims in 2022 (which, in turn, were 9% higher than 2021 claims)¹. Unoccupied properties are at higher risk for these claims, but even occupied properties can experience significant damage if a leak isn’t managed immediately.

Managing the risk

You can help your SME clients reduce their chances of experiencing these claims by fine-tuning their risk management plan. For example, property owners can ensure plumbing fittings are suited to their use and don’t show excessive wear and tear. They can inspect pipes for leaks between tenants and have water tanks inspected regularly. Exterior pipes should be insulated, particularly as we move into the winter season and temperatures can suddenly drop. A more recent innovation is the introduction of leak detection devices that alert building owners to a leak, some of which automatically stop it at the source. We also recommend that policyholders and their property managers stay in contact with tenants, educate them about the location of stopcocks, and provide them with an emergency contact list if problems arise. In unoccupied properties, they can turn off the water supply, keep heating on at a low level, and check in frequently.

Brokers play a critical role in encouraging clients to proactively manage their water exposures. In doing so, you give insurers greater confidence in the risk management quality. Even better, when your clients are aware of potential points of failure, they can avoid the headache of a costly claim – and sleep a little better at night too.

The information provided is for general informational purposes only. It does not, and it is not intended to, provide legal, technical, or other professional advice, nor does it amend, or otherwise affect, the provisions or coverages of any insurance policy issued by Travelers. Travelers does not warrant that adherence to, or compliance with, any recommendations, best practices, checklists, or guidelines will result in a particular outcome. Furthermore, laws, regulations, standards, guidance and codes may change from time to time, and you should always refer to the most current requirements and take specific advice when dealing with specific situations. In no event will Travelers be liable in tort, contract or otherwise to anyone who has access to or uses this information.

Travelers operates through several underwriting entities in the UK and Europe. Please consult your policy.

Sources:
¹  Association of British Insurers, Property Claims 2024Q2 Dataset, https://www.abi.org.uk/data