Fire damage often steals headlines for catastrophic loss on construction sites. But while fire leads the way for severity, water damage has emerged as a leading cause of loss in construction in both frequency and severity.
Non-weather water claims are among the most common type of property insurance claims in construction costing the industry an estimate $16 billion per year.1 Industry experts estimate non-weather water claims account for over a third of all construction losses.2 And according to the United States Congressional Budget Office, if you add in weather related hurricane and flood damage, these figures are well over $50 billion annually.
Non-weather claims were problematic even before the pandemic led to supply chain issues, and inflation has since caused the cost of materials to skyrocket. Nationwide claims data shows costs are increasing with median spending for water damage claims up 21% year-over-year.3 And since 2015, non-weather large loss water claims over $500,000 have doubled, and losses over $1 million have tripled.4
Impact to contractors
Water damage can affect both large and small construction projects alike. Water damage losses can negatively contractors in multiple ways including project delays, liquidated damages, reputational risks, rework costs, etc.
Water damage can have a direct financial impact with losses to building, materials, tools, and equipment. It can also present a liability to the business. Liability claims can originate from both ongoing jobsite operations and completed work.
Who’s at risk?
Contractors working directly with water and around pipes such as plumbing and HVAC are at increased risk of water damage claims. Nationwide’s internal claims data reaffirms this and shows nearly 60% of water damage claims fall within these trades.3
However, that still leaves around 40% of claims being associated with a long list of trade contractors; many of these not working directly with water at all.3 Any contractor working around piping, fire sprinkler systems or using valves could be exposed and should be prepared to prevent and respond to water damage losses. Even contractors involved with work outside of the building, such as grading land or excavating can be exposed to a potential water damage loss.
What can be done:
The good news is that most water damage losses are preventable. To be successful, contractors should conduct a review of their potential water exposures on the jobsite, conduct a self-assessment of current policies and procedures and then adopt a formal construction water mitigation program to address their water risk potential.
A formal water mitigation program should address all phases of construction including pre-construction, ongoing construction and post-construction activities. Below is a list of key activities that should be contemplated in each phase of construction:
Pre-construction activities
Participate in pre-construction meetings and constructability reviews, provide input on design features relating to water damage prevention, choose the best water/mold resistant materials, hire waterproofing experts, evaluate topography and adjacent exposures for potential water hazards, implement a system to monitor weather for the project, develop a severe weather plan, source pumps and backup power sources, develop a water damage response plan, include water/moisture sensors for the project on your bid, implement proper risk transfer, etc.
Ongoing construction activities
Implement a wet work permit program for all contractors working with water or other liquids, utilize water sensors/leak detection, map all water shut off valves, orient contractors to valve locations, conduct daily inspections, maintain after hours emergency contact lists, perform material verifications, create a shut-down checklist, ensure critical materials are off the ground and not stored in areas prone to water, perform water penetration tests on window and building envelope components and continue to monitor jobsite for water drainage concerns, etc.
Post construction activities
Dedicate a “punch list” team who have been trained and understands how to address water sensitive issues, document all re-work, address water sensitive issues quickly, maintain a quick response team from warranty issues involving water, ensure all shut-off valves are marked prior to delivering to customer, verify your water damage response plan is ready to be implemented while the building still remains under your control, be prepared to implement your severe weather plan, centrally monitor fire sprinkler systems, continue to utilize leak detection/water sensors until final delivery and inspect the building regularly.
Implement a construction water mitigation program
The data is clear that water damage is a significant exposure in construction and one that deserves attention on the jobsite. To combat this will require increased education on the risks and prevention measures associated with water damage and a commitment to implement sound risk management principles.
A formal water damage mitigation program specific to the construction industry can help contractors prevent a water loss from happening or mitigate its impact to their project and their business.
Nationwide has a customizable Construction Water Mitigation Program (CWMP) that is designed to be a guide to help contractors create a customized plan or supplement their existing plan.
[1] “Using big data to predict non-weather water claims risk,” https://www.propertycasualty360.com/2020/01/31/using-big-data-to-predict-non-weather-water-claims-risk/
[2] “Construction market hammered by rising fire, water damage claims,” https://www.businessinsurance.com/article/20190604/NEWS06/912328845/Construction-m
[3] Nationwide claims data 2023
[4] “Plugging the leaks,” https://news.ambest.com/articlecontent.aspx?refnum=280137