Escape of water: Tapping into the true cost of water ingress to businesses

By Howden

Picture this: It’s a chilly winter’s morning and you’re the first to arrive at your business premises. Maybe it’s a workshop, office space, or even retail outlet? But no sooner have you walked in than you’re wading through water. And the next thing you notice is wet and soaking stock, then the effect on surfaces, electrics, walls… all this obvious chaos and you haven’t even located the source, yet. All you can be sure of is that there’ll be a cost – not just in terms of immediate repair, but the likelihood of stoppages in production and not being able to trade. 

The term ‘escape of water’ or ‘ingress of water’ describes anything from a small leak to a burst pipe or even flood. And for such an innocuous-sounding term, the repercussions of water ‘escaping’ have the economic power to create close to £1 billion in insurable losses every year.

Even the possibility of the escape of water is a nightmare for businesses, so we’re going deep into the pipework to look at root causes, costs, and outcomes – but most importantly, how to avoid getting into deep water by mitigating risk and ensuring you’re adequately insured.

The cost of escape of water to insurers

Before we dive into cause and solution, let’s look further at that bottom line for businesses. Escape of water continues to be one of the most common and expensive claim sources for the insurance industry. In fact, according to information shared by the Association of British Insurers with many of the major insurance companies, the average per-day cost for commercial claims is £2.5 million a day – which quickly adds up to that £1 billion per year we quoted above. Breaking that down on a “case basis,” it’s not unusual for a single commercial loss claim to exceed a £1 million. And the more incidents and claims there are, the higher the price of premiums and policies get.

The implications of escape from water to uninsured or underinsured businesses and organisations

If you operate a commercial enterprise, or sign off on facilities, business insurance, and regular business costs, this is the bit you’ll want to digest. A serious escape of water event is estimated to cost a business around £80,000. Small businesses experiencing the “imaginary scenario” at the start of this piece may find themselves unable to fully operate for up to fifty working days, which has the potential to be crippling and, in some circumstances, prevent the business from full recovery. This may mean production’s halted, orders are unfulfilled, and stock, equipment, and machinery are damaged, possibly beyond repair. And while you await replacements, there are still bills to pay and customers who require an explanation for delays. There’s also the potential for corrosion and the risk from contamination in any leaked water – all of which can add to the delay and restart. 

Escaped water may also affect surrounding electrical equipment, creating additional hazards and costs. Furthermore, if your business property is unusually empty during the clean-up and renovation, there may be an added risk of theft as security systems may have been compromised.

We can also add reputational damage to what’s swept away in this tidal wave of unfortunate events. Suppliers, staff, clients, customers, and anyone else in your supply chain… they may well have sympathy for your dilemma but decide to work with someone else as a result.

This is why, alongside robust business insurance specifically for events such as flooding, it’s critical to make sure you have business interruption insurance that’s designed to protect the organisation during this unpredicted stoppage time.

Causes of ‘escape of water’

Domestically, escape of water incidents have been on the rise following an increase in the development of flat/apartment buildings. So, with more bathrooms and kitchens on multiple levels, with associated domestic appliances and showers, the exposure increases. But if your business is the property business, this may fall under a commercial loss or perhaps landlords’ insurance, rather than a tenant’s domestic insurance. 

The construction industry as a whole recognises the appetite for cost-effective and affordable buildings. But this may lead to the use of finishes and materials – including modular systems and composite products – which are potentially more vulnerable to water damage through absorbency, resulting in distortion/swelling, which then necessitates replacement rather than repair.

Commercially, when considering potential areas of escape of water, we need to shift our lens to a broader landscape of root causes and issues:

• Thawed frozen pipes, and water tanks
• Taps or water-operated machinery left on
• Poor or failed pipe fittings or elements
• Valve failures (such as water tank ball cock valves, or siphons)
• Faulty or poorly installed pumping systems
• Overflowing sinks or internal drains
• Unattended factories, offices, or retail outlets – especially throughout the colder months
• Blocked drainage (such as blocked toilets, sinks in commercial kitchens and toilets)
• Corroded pipework

Top tips for preventing escape of water

While making sure you always have adequate insurance in place, there are steps organisations can take to help to mitigate escape of water. As experts in risk management, we’d like to share the following recommendations:

1. Make sure your key stoppage valves are identifiable, exercised, accessible, and clearly labelled
2. Know where your riskier water pipes are located (those outside or located in colder areas (in lofts for example) and get these lagged. And if appropriate, trace heated to minimise the risk of freezing.
3. Any electrical machinery should be positioned away from overhead water pipes and tanks – and network/server rooms should be a safe distance from water sources. This also goes for any other valuable items at your business premises.
4. One more thing about those electrical items; we recommend anything that is vulnerable to escape of water — including stock or contents — is raised 100mm from ground level, so if there’s a leak or water seepage spreading below, there’s less potential for these items to be affected.
5. Have your employees received training on leak prevention or what actions to take if they become aware of a leak or flood? It’s as critical as fire safety training that there is a widely communicated plan in place, and that there are key personnel that can perform certain tasks like shutting off valves.
6. If you haven’t done so already, install isolation valves that can at least prevent a widespread flood between floors.
7. If you know your business premises are going to be empty for some time, it’s a smart idea to not just have a steady temperature of at least 10 degrees Celsius to prevent burst or freezing pipes, but also to isolate and drain the water supply. If the supply cannot be drained, then shutting the incoming main stopcock will mean that any leak is limited to the water within the pipework, and this prevents the main pressure from exacerbating the situation. 
8. It’s a worthwhile investment to install monitoring and response systems that can send out remote alerts if there is a sudden change to water flow or a leak is detected. And if your building and system is suitable for an automatic water shutoff system, even better.
9. There is such a thing as a spill response cart. This should not just have mops, buckets and commercial-level wet vacuums, and absorbent materials, but also dehumidifiers, pumps, and hoses. And don’t forget to have a schematic or diagrams of where all the pipes and valves can be found. It would be advisable to have offsite copies of such documents on a digital file or PDF on your phone, or back these up to the Cloud for easy access.
10. And finally, there’s the regular testing, inspection, and maintenance of all plumbing and heating systems. With scheduled visits from a registered and recommended engineer, signs of weakness and failure can often be spotted and treated before it turns into a major problem. 

And of course, the right level of insurance

So, we have unpicked what can cause escape of water and provided a robust list of advice to avoid such situations. But underpinning all of that is the requirement for insurance that covers you for that literal rainy day. Having adequate cover means that the burden and stress is taken on by your insurance company. The loss assessor is assigned, and all the suitable contactors who are part of the clean-up and rebuilding operation will do their job without you having to source them and pay out yourself.

Business interruption insurance is the final but essential piece of the puzzle; the unexpected downtime, breaks in service levels and delivery, and ensuring bills get paid is what you can expect from a solid business interruption policy.

Nobody goes to work expecting to wade through water. But it can happen… and this is in addition to flooding caused by the elements, such as storm damage.
If you want to build a stronger defence barrier that can mitigate for the effects and damage caused by escaped water, give Howden a call today on 020 7623 3806, or visit here to get a quote.