In fact, flooding has been increasing in frequency and severity across the country for the last several years, and the Insurance Bureau of Canada estimates that approximately 10 per cent of Canadian homes are at high risk of flooding. At the same time, weather-related events may actually be less common than general plumbing issues or appliance failure.
Property managers and building owners – for both residential and commercial occupancies – must understand the risks and plan for them accordingly. They should also take proactive steps to mitigate their risks in an attempt to avoid costly claims.
Understand the risks
Most Canadians assume that their homeowner’s insurance will cover them in case of a flood, but that isn’t always the case. What’s more, the average insurance claim for water damage is about $10,000 – not an insignificant sum.
Water damage comes from many places. In some cases, water damage comes from exterior factors: coastal flooding, storm damage and wildfires (from attempting to extinguish the fire). But when it comes to multi-unit buildings, water damage can come from interior infrastructure problems, including aging pipes, improperly installed newer systems and even the effects of water chemistry on plumbing systems over time.
Water damage isn’t always a major disaster. But if it crops up annually, it can be devastating. Insurers look carefully at a property that files smaller, more frequent claims for water damage, and may increase insurance premiums or deny coverage outright.
Break the cycle
Insurance can sometimes be viewed as a cycle – a client pays money to a carrier, has a claim, pays a deductible, then gets their property repaired and the cycle starts over again. After a claim, premiums will go up for the carrier to recoup some of their losses. If the cycle continues, premiums will continuously rise. This is an outdated approach and is not beneficial for either the carrier (who must pay out for losses), or the client (who continues to see increases in premiums).
Break out of that cycle by taking the precautions necessary to mitigate risk, decrease claims frequency and reduce premiums. Keep in mind that the main exposure for tenants of both residential and commercial rental properties is damage to contents. As a result, many buildings require tenants to carry full policies covering property and liability, which transfers the liability from the building owner to the tenant. In this way, each unit can be covered by the policy protecting the source of the problem.
Protect the property
When your business is your property, it’s important to go through a process to protect your building appropriately. These steps include:
- Perform a cost-benefit analysis. Make sure you know what kind of plumbing you have in your building and determine if remediation is the right course of action. Remediation may involve a complete replacement of all components, fastening systems, fittings between plumbing types or all of the above. Understand the strengths and weaknesses of the different plumbing systems.
- Develop a water damage mitigation plan. The larger the damaged area, the more expensive the repair. Every additional square foot of damage results in more time, materials and manpower to restore it. It’s critical to have a water remediation expert you trust to solve the problem when it appears. Templates are available to create a simple Domestic Water Emergency Response Plan. It may also be a good idea to purchase business interruption coverage just in case you have to shut the building down for a period of time.
- Perform regular maintenance. Of course, catching a potential problem early means you’ll never have water damage to begin with. Schedule routine inspections of plumbing infrastructure regularly, especially as part of an insurance renewal application. Inspections check for leaks and sewer pipe backup, as well as verify that the water pressure is calibrated correctly, and that tubs and sinks are draining appropriately.
- Monitor equipment. Damaged boilers and other machinery can cause extensive water damage. The good news is that problems can often be avoided when equipment is routinely monitored and maintained correctly.
- Increase the deductible. This strategy is not intuitive, but it can work with well-maintained buildings that have a lower overall risk threshold. A policy with a higher deductible leaves the building owner responsible for a larger amount of the claim costs – but it also means a lower premium. This strategy may be successful in well maintained buildings, so carefully consider the circumstances before taking this step.
There’s nothing worse than learning to swim in a storm. Don’t wait for water damage (whether by overland flood or infrastructure failure) to affect your building before understanding the systems you have in place. Have a plan, be proactive and monitor the equipment and systems in the building. Each step you take will help lower your risks, now and in the future.