‘Escape of water’ is the term used to describe leaks or flooding within a building, for example from a burst pipe or overflowing toilet or sink.

Whilst escape of water is an issue for both residential and commercial property owners, the nature and structure of commercial buildings means that leaks often result in more extensive damage and significant losses for commercial property owners. For example, commercial buildings such as offices are more likely to have large-scale water systems, for example air conditioning units, large heating systems and water coolers. They are also more likely to be left vacant for long periods (for example at weekends or overnight), meaning a leak can take longer to discover and result in more significant damage.

According to Zurich, escape of water caused £987 million worth of claims in 2022, £368 million of which occurred in Q4 alone – an increase of 15% on the previous year. One claimant, a college, suffered damage costing nearly £800,000 due to a pipe leak, while another building sustained £150,000 worth of damage due to eight separate leaks.

Why are escape of water claims rising?

According to a study published by the Copper Sustainability Partnership (CuSP) and the Alliance for Sustainable Building Products (ASBP), one of the major reasons for the surge in escape of water claims in recent years is the increased use of plastic push-fit pipework, particularly in renovation and new build projects. Whilst quicker to put together and install, they are more vulnerable to cracks and leaks when they come into contact with ‘incompatible’ materials such as caulks, fire stopping materials, leak detection fluids, paints and sealants.

Another reason is undoubtedly extremely cold weather, which can cause pipes to freeze and then crack or burst as the water inside them expands. This will result in leaks once the water has thawed. Last winter, for example, temperatures plummeted to almost -10 degrees, resulting in a (quite literal) flood of claims from policyholders. According to the Association of British Insurers, domestic and commercial escape of water claims soared by a massive 56% in Q4 2022 compared with the previous quarter.

As a result, the market for escape of water claims has been hardening for some years now, meaning that insurers are increasing premiums and applying higher excesses in an attempt to mitigate the impact. They are also increasingly scrutinising how property owners are managing and minimising escape of water risks during the fact-finding stage.

How inflation is impacting escape of water claims

Inflation has soared over the past year, meaning that the price of consumer goods, energy and – crucially – labour and building materials have all increased at unprecedented levels. This means that more and more policyholders risk finding themselves underinsured, as the costs to repair the same level of damage are likely to be much higher now than they were when the insured first took out their policy. In fact, AXA says that the most prevalent impact of claims inflation is currently being experienced through escape of water losses.

Brokers can help protect their clients by educating them on the impact of inflation on their policies and encouraging them to review their sum insured at renewal.

Protecting your clients’ business

One of the best ways to help your clients protect their business is through a robust commercial property insurance policy that offers cover for escape of water claims, such as our Property Owners: Portfolios product in partnership with Zurich.

As the old adage goes, though, prevention is always better than cure – and this means taking measures to avoid water damage in the first place. Being able to demonstrate that they are taking measures to minimise the risks will also play to your clients’ advantage when it comes to securing a competitive insurance policy. So, what can businesses do to ensure their property stays dry and damage-free?

• Don’t ignore a minor leak or a dripping tap – there could be something much worse going on under the surface!
• Actively check for leaks in high-risk areas like kitchens and bathrooms
• Ensure that pipes don’t freeze by insulating them or keeping the heating on a low burn
• Pressure test your plumbing systems
• Invest in leak-detection devices and technology
• Ensure you know where your stop cocks are so that you can turn off the water quickly when a leak is identified
• Keep an eye on unoccupied properties – you could even turn the water off at the source to negate the risk entirely.

Talk to Focus

For expert advice and competitive cover for your commercial property clients, why not give us a call to chat about your risk? We’re always happy to talk.