An unprecedented flurry of water damage claims from the construction industry in recent years has led to insurance underwriters and claims professionals hailing water as "the new fire".

LOSSES in the construction industry have traditionally come mostly from accidents, fires and theft. However, the recent spate of water damage incidents has brought the issue to the forefront of underwriters’ minds when considering policy covers and conditions. It has also started to focus the minds of loss control specialists who have not traditionally viewed water as an initiator of serious financial claims.

Statistics show that 50% of claims from construction sites are caused by Water Damage from internal services, fires and external flooding in equal amounts.

The largest claims in recent years come from burst pipes. The situation is often exacerbated when many of these failures manifest themselves towards the end of a project when internal fit-outs are well advanced and the potential for water damage is at its greatest.

The reasons for this increase in losses are varied but can be put down to two basic factors: modern jointing systems and poor standards of workmanship. Allied to this is the absence of a common standard for testing across the industry and no agreed best practice.

Problems have been encountered with crimped joints, plastic pipework and copper-toplastic pipe interfaces. These modern systems are relatively easy to install and as a consequence are installed by non-qualified personnel with little training or experience.

The solution to the problem appears to be twofold: firstly to address the underlying causes of the losses, and secondly, to mitigate the damage should these losses occur. The former is a bigger task as it involves addressing workmanship and commissioning standards in a large established industry, though quicker fixes can be achieved by careful selection of plumbing systems and designing out poor features such as combined service risers.

Addressing the latter seems to hold the key to an easier fix. Accepting that influencing the standards within the industry is a longer term goal and also accepting that pipes are going to continue to burst, the industry should focus on mitigating the effects of a water leak once it has occurred. The measures to achieve these goals are mostly simple and inexpensive. Water management devices can be programmed to shut off water when extraordinary flows are detected, such as at night when a building is not occupied.

Routine patrols can be carried out whilst air conditioning and plumbing systems are tested and commissioned. Water management plans and accessible shut-off valves is another easy win as is shutting off the supply or the booster pumps in a vacant building.

The effect of a water leak in a multistorey building towards the end of the fit-out can cause serious damage and add months to the construction period at a point where programme recovery is impossible; this leaves the client and contractors looking at large financial costs and loss of reputation. While insurance will pick up the direct damage and advanced loss of profits if cover has been purchased by the client, the exposure to delays and indirect costs can have a significant impact on a firm’s bottom line.

Joint action is required as both the construction and the insurance industry are suffering from these losses and in the long run claims costs will be passed back in the form of increased premiums.

There is still much consultation that needs to take place between the construction and insurance industries to reduce the incidence of these avoidable claims that are proving so costly to both.