Aon: Water Damage Protection Systems Can Improve Claims by More Than Half

Water damage is a common pain in commercial real estate that can be enormous in its effects and costs. It is the leading cause of claims in frequency and dollar value, constituting 47% of all insurance claims, according to a new report from Aon Canada’s Real Estate Practice.

But the point of the report was more than tallying losses. It was a study of the benefits that leak detection can offer. The examination was based on five years of data from a large Canadian real estate corporation’s portfolio of assets and insurance claims history. The portfolio comprised multifamily, office, retail, and industrial property types.

“Aon analyzed the effectiveness of implementing intelligent water prevention technology in eliminating or minimizing water-related damages, by specifically analyzing the financial impact of both leak detection systems and water flow management devices,” the firm said. Although there are several vendors of such systems, the firm looked only at two products from a single vendor: Eddy H2O Sensor, which detects leaks, and Eddy Link & Shutoff Valve, which can control and stop the flow of water.

The study’s results show that there isn’t a magic solution that can eliminate all problems. But in the claims it studied and the single vendor product line considered, there are significant risk management advantages.

The analysis identified 243 water-damage related insurance claims, which in total amounted to $14.5 million in losses. In 58% of the cases, water leak detection systems could have reduced loss amounts by at least 5%, although in 35.8% of claims, such a system would not have reduced losses by any notable amount. In the remaining 6.2% of claims, the available data didn’t allow a determination of whether success would have been possible.

The study found that 23% of the total water damage amounts could have been “successfully mitigated,” which represented $4.8 million in losses. Mitigation would have eliminated $3.3 million. So, while 58% could have been positively affected, only 23% would have been successfully mitigated.

Interestingly, the water protection systems would have had a greater dollar loss mitigation value in the largest-valued claims. “Out of all 141 positively affected water damage claims, 106 claims were individually valued around $10,000 or less, totalling approximately $216,000 in damages,” the report said. “This value is a rather nominal amount compared to the $14.5 million of total water claims examined. In these low-valued claims ($10,000 or less), water protection systems could not have much of an overall financial impact, as the loss damage amounts avoided would be rather minimal.”

But as the dollar value grew, so did the benefit of the systems, suggesting that “leak detection systems and water flow management devices are most effective in protecting against larger water loss claims.”