Water Damage: A Leading Cause of Commercial Property Claims

7-minute read

It’s the early hours of a weekend morning, and the owner of a downtown restaurant receives a call every business owner dreads: a major leak had sprung from a burst pipe in the kitchen, flooding the dining area.

By the time the issue was discovered, water had soaked into the hardwood floors, damaged expensive kitchen equipment, and even caused a minor electrical short. The cleanup and repairs took weeks, leading to a significant financial hit — both from the direct damage and the revenue lost during the downtime.

This isn’t a one-off scenario. Water damage is, in fact, one of the most common and costly claims businesses face. Whether it’s a burst pipe, malfunctioning HVAC unit, or roof leak during a storm, water damage can disrupt operations, ruin property, and eat away at profits.

The risks are even higher for companies that operate out of older buildings where infrastructure issues are more likely. While insurance is essential for covering the unexpected, proactive steps to minimize the risk of water damage can save business owners a lot of headaches — and money — down the road.

The Scope of the Problem

According to industry reports, water-related incidents account for a significant portion of commercial property claims, often surpassing fire and theft. Unlike a fire, which tends to cause immediate and visible damage, water leaks can go unnoticed for long periods, leading to extensive, hidden damage to building materials like drywall, flooring, and insulation. When mold starts to grow, that damage can multiply, requiring even more expensive repairs.

What makes water damage so challenging is its unpredictability. Pipes can freeze and burst in cold weather, sprinkler systems can malfunction, and flat roofs on commercial buildings can collect rainwater, leading to leaks. Even businesses located in non-flood-prone areas aren’t immune, as water issues often come from within — faulty plumbing, clogged drains, or failing appliances.

The Financial Toll

The cost of water damage can quickly escalate, especially if it leads to downtime or forces a business to close temporarily. According to the Insurance Institute for Business & Home Safety (IBHS), even minor leaks can cost thousands in repairs, and extensive flooding can lead to tens or even hundreds of thousands in losses.

Beyond direct costs, water damage can have long-term impacts on a business’s operations and reputation. For example, a restaurant forced to shut down due to flooding might lose loyal customers to competitors, while a manufacturing facility facing downtime could miss key deadlines, jeopardizing contracts and future opportunities.

While property insurance and business interruption insurance can help mitigate these losses, the best course of action is to prevent water damage before it happens.

Risk Management Tips to Prevent Water Damage

Preventing water damage may seem like a daunting task, especially for business owners juggling a myriad of operational challenges, but taking proactive steps can make a big difference. Here are six practical strategies to help minimize the risk of water-related losses:

1. Regularly Inspect Plumbing Systems. One of the simplest yet most effective ways to prevent water damage is to conduct routine inspections of your plumbing system. Look for signs of wear and tear, such as rusted or corroded pipes, and replace parts as needed. Installing water sensors in key areas, like near water heaters or under sinks, can help detect leaks early and prevent more extensive damage.

2. Maintain Your Roof and Gutters. Water damage from a leaking roof is a common issue, especially in older commercial buildings. Schedule regular roof inspections to check for damaged or missing shingles, and make sure gutters and downspouts are clear of debris to prevent water from pooling on the roof. Flat roofs, in particular, should be monitored closely as they are prone to collecting rainwater and debris that can lead to leaks.

3. Install a Leak Detection System. Technology can be a game-changer in preventing water damage. Leak detection systems, which may be required by some insurers in some parts of the country, are designed to alert you to leaks or changes in moisture levels, allowing you to respond before the damage worsens. Some systems can even shut off the water supply automatically when a leak is detected, helping to mitigate potential losses.

4. Test and Service Sprinkler Systems Regularly. If your business has a sprinkler system, it’s essential to have it regularly inspected and serviced by a professional. Faulty or outdated sprinkler systems can malfunction and cause extensive water damage. Ensure that your system is compliant with local regulations and that it functions properly in the event of both fire and system malfunctions.

5. Protect Pipes in Cold Weather. In colder climates, frozen pipes are a significant concern. Insulate pipes in unheated areas like basements, attics, and crawl spaces to prevent freezing. During especially cold weather, keep a trickle of water running through faucets to reduce pressure in the pipes, and make sure the building maintains a consistent temperature, even in areas not regularly occupied.

6. Have a Water Damage Response Plan. Despite the best preventative measures, accidents can still happen. Having a water damage response plan in place is crucial. Identify where the main water shut-off valves are, train employees on emergency procedures, and establish relationships with local water damage restoration services. Being able to act quickly can minimize damage and reduce downtime.

Water damage is an ever-present risk for all businesses, but it doesn’t have to be an inevitable financial setback. By investing in regular maintenance, using modern technology, and educating employees about prevention techniques, business owners can substantially reduce their exposure to costly water-related incidents.

Taking the time to implement these risk management strategies today can save you from major headaches — and expenses — tomorrow. Because in business, it’s not just about weathering the storm; it’s about making sure the leaks don’t sink your ship.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.