Water is necessary for all of us. Unfortunately, too much of it in the wrong places at the wrong times are one of the biggest reasons for financial and coverage challenges in the insurance market today.
Whether big (from a hurricane) or small (a leaky roof for a business or homeowner) we see more claims because of water issues than just about all other reasons combined. Water causes real damage to structures and costs the insurance industry upwards of $13 billion per year in the U.S. alone based on a Verisk Analytics’ IO unit study released in 2019.
When most commercial or residential property owners think about water-related insurance claims, the most common events that come to mind are catastrophic storms like hurricanes or floods, or even more mundane but common events like a pipe burst or a leaky plumbing valve.
Yet according to Brendan Cook, vice president and managing director of Global Excess Partners, some of the most expensive water-related claims can be prevented by scheduling inspections or simply paying attention to details.
The Big Freeze in Texas
The Freeze Event that cost Texas businesses, homeowners and insurers over $30 billion in February 2021 was more than just an ice storm. If it had occurred in other parts of the country, it likely would not have turned into such a serious event for so many people. One of the factors that caused such significant damage was how buildings in Texas had been constructed. Most structures weren’t built for ice and winter weather, which accelerated the freezing of pipes.
Texas’ legislative decision to not connect with other nationwide power grids played a significant role in that length of the ensuring power loss and hampered communications for many days exacerbating damage. ‘It made a difference,” Cook said. “Bordering or nearby states like Oklahoma and Kansas who do participate in national power grids experienced similar weather but not the power outages in Texas.”
Preparation is a key to prevent such significant outages and issues
This 2021 “freeze” event in Texas shows a significant lack of preparation from state and local governments and property owners throughout the state. As an example, the failure of commercial or residential building owners to leave a faucet open or drain the water from pipes caused freeze and ensuing pipe bursts and significant structural damage.
“The feeling was that If local government officials provided earlier warnings and advice to residents, individuals may have been able to better protect their property,” Cook said. Once the storm hit, travel on roadways became difficult if not impossible (due to the lack of machinery to clear the roads) and the failure of the state’s basic communications systems grid made it difficult to take the necessary prevention measures needed for a faster recovery.
Hindsight provides us the opportunity to review and improve our preparation and response to the next event. “We need to learn more our mistakes or the mistakes of others,” Cook said.
Insurance claims rise significantly following a catastrophic event
The insurance industry was inundated with claims from this event, which is typical after a catastrophic loss.
Loss adjustments are always a difficult and often complicated but in this instance the inspection process took weeks or even months due to the size of the event and the nature of the damage. Once power was restored, every pipe in every structure needed to be inspected to determine if there was damage that required repairs.
Proper maintenance and inspections help lessen your risk profile
The damage water can cause doesn’t just lurk behind the walls. If not properly maintained, a leaking roof can cause damage to foundations and roof support structures increasing the risk of a structure collapse. Untreated water damage can lead to mold, not just damaging the structure but threatening the health of residents and employees.
Whether it is a two-bedroom house in Texas or a 1 million square-foot commercial building in the Upper Midwest, property maintenance and regular inspections can help prevent some of these disasters from occurring, and many insurance claims from needing to be filed, Cook said. Commercial operations often have a risk manager who can help assess and strategize. Inspections of the roof, walls, foundation, attic, and any other place where issues are likely to occur should be regular, either by a professional, or someone with an idea of what to look for.
“Simply paying attention to your surroundings on a weekly basis can help,” Cook said. “Look for issues around your home or property.”
If homeowners or landlords pop their head into the attic now and then or pay close attention to any water marks on ceiling tiles, a significant crisis can be averted. “You don’t need to be a professional inspector to notice an issue that needs to be fixed.”
Other tips can reduce future issues as well
The bottom line is to prevent claims, property damage and potentially higher premiums or policy denials down the line. Water isn’t prejudiced. Building and homeowners need a plan that can be executed. According to Cook, these tips include :
- Understanding the coverage you have, including the deductible. For example, some policies have sewer backup or mold coverage limits but its policyholders won’t even know.
- Draining water out of pipes before the winter starts (check with your insurance advisor first)
- Schedule regular inspections – with professionals if needed.
- Business or building owners should consider working with a risk manager.
- Pay attention to the little details – do your own checks monthly. Don’t ignore warning signs.
Having to file a claim is never a pleasant experience. There will always be some out-of-pocket expenses. But water is a different animal.
“Be smart, be prepared and your insurance carrier will thank you,” Cook said. And that’s good business for all parties.