Prevent the Largest Construction Site Risk: Water Damage

Water damage claims in construction have risen dramatically, now accounting for about a third of all builder’s risk losses.² The impact of these losses extends beyond damage to property, often resulting in delayed construction timelines, lost profits and reputational harm.

Rising numbers of natural disasters, fewer skilled workers on the job and tighter budgets due to inflation exacerbate the situation. In the past 20 years, natural disasters have increased the frequency and severity of storms worldwide, with flooding losses attributed to those weather events totaling $82 billion in 2021. Weather changes also contributed to widespread damage after a 2021 cold snap in Houston, Texas; insurers paid out nearly $11 billion for water damage from burst pipes and roof collapses.²

Economic conditions are also contributing to the rising cost of water damage claims. A severe shortage of skilled construction workers could result in everything from poorly installed roof and window flashing to foundation fissures and insufficient drainage— all of which lead to water intrusion and mold.

Supply chain delays, inflation and rising labor costs have increased nonresidential construction prices by 22% over 2021, making any water damage even more costly to repair.³

Develop a construction site water mitigation plan

With the rise in water damage claims, many carriers are requiring general contractors to develop water damage risk mitigation plans before underwriting the exposure. Contractors with plans for controlling water issues during construction can reduce claim frequency and severity and avoid costly project delays. To create a water damage prevention program, construction companies should:

• Conduct a pre-construction risk assessment. Evaluate the project’s vulnerabilities to external water infiltration problems before beginning. Include current mitigation factors and any historical losses at the site. For properties in areas prone to flooding, consider flood-specific insurance since those losses will not be covered under a builder’s risk policy.

• Create a detection plan. Training both construction workers and security on how to spot potential water damage can prevent serious damage. Security guards should know which parts of a construction project may be at greatest risk of water intrusion and which areas should be monitored for leaks. Make sure staff knows who to contact in the event of an emergency and is trained on how to address issues, such as shutting off water mains.

• Develop a response plan. Design a plan detailing how to respond to water damage events if they occur. These plans should include communication strategies and ensure response kits are readily available to mitigate water damage. The faster the response, the less costly the incident will be.

• Consider technical solutions. Internet of Things (IoT) technologies — such as water sensors, flow detection systems and automatic shutoff valves — can be effective safeguards. Some carriers will absorb a portion or all of the cost of the devices to encourage policyholders to embrace these technologies and reduce their water damage claim exposure.

• Include pre-emptive measures during construction. Create a punch list of identified and resolved water issues and maintain a schedule for reviewing trouble spots. For example, regularly test the permeability of the building envelop, check roofs for water tightness and run pressure tests of piping systems prior to turning on the water.

Contact HUB International’s construction insurance experts to learn more about preventing water damage at your construction site.

¹ Liberty Mutual, “Water, the new fire in commercial construction,” June 2020.
² Insurance Journal, “Insurance Companies Sue Texas Power Grid Operators Over 2021 Winter Storm Losses,” January 7, 2022.
³ Business Insurance, “Supply chain woes test contractors,” March 4, 2022.