When speaking with prospective clients, we often get asked if we can quantify the Return on Investment (ROI) of a Leak Detection System.
While there is no simple formula to calculate the ROI of a Leak Detection System, we will do our best to cover all the elements that can impact the ROI of such an investment while also sharing why we believe that such systems should be implemented for the purpose of good governance and risk management.
To better understand the need for such an investment, we have broken down our analysis into two segments. The first segment is focused on insurance and risk while the second segment is focused on operational advantages.
Insurance and Risk:
When it comes to insurance and risk, the first part is to identify the likelihood of water loss within the built environment.
After extensive research yet limited data points, we have found that according to this article published in the Canadian Underwriter, condos have more than a 30% chance of making a claim each year. While we encourage you to come to your own conclusions by using your own data set, one could assume that similar ratios would apply to multi-residential rentals and commercial high-rise. In addition, according to this study from the Canadian Institute of Actuaries, water damage represents 48% of the claims, making water the most common cause of loss within the built environment. By utilizing the above 2 statistics, one could expect that condos, if not all high-rise buildings, have approximately a 14% chance of making a water claim each year or once every 7 years.
The second part is to evaluate the “size and/or magnitude” of this risk.
When evaluating the magnitude of this risk, you should take into consideration the ever increasing costs of insurance, your insurability, the size of loss, and the deductible payout in the event of a loss.
This recent Canadian Underwriter article indicates that while insurance costs have been on the rise now for a combined 13 consecutive quarters, there is no end in sight. For property owners and managers, this means that you need to continue to put energy in making your risk management more attractive to underwriters to ensure that insurance capacity can be carved out for your book of business at competitive market rates. As indicated in the above section, since water is the most common cause of loss within the built environment, it is only good governance to implement some form of water risk mitigation to appeal to the underwriter. In some market segments, the industry has seen insurance costs spike as high as 780% making it impossible for the landlord or condo board to recoup such an expense.
Given this hard insurance market and the capacity reduction resulting from the exit of many underwriters within the Commercial Property Insurance space over the last few years, property owners and managers have limited – if any – options when it comes to insurance. Some have even been denied coverage. Differentiating your risk profile can help create capacity and give you a competitive advantage in this market.
Size of Loss:
As it relates to water claims within the built environment, many articles have been written using different data points which identify that the average size of a claim ranges from $150,000 to $250,000. More importantly, it has been found that the cost incurred for such losses have increased by 400% over the past 10 years. Leveraging technology such as Flood Mitigation Systems to reduce the size of a water loss is a great way to reduce your loss impact.
Another very important element to consider is the size of your deductible. Over the last few years deductible payouts for some, if not most, have increased from $25,000 to $250,000 and even up to $500,000. What we have seen happen here is that the underwriters have effectively passed on the risk of claims beneath the deductible threshold to the property owners and managers. One can say that these property owners and managers are now self-insured until they reach a claim that exceeds the deductible payout, which may never happen if you are one of these individuals with a $250,000 to $500,000 deductible.
Some of the obvious benefits & savings that come from installing a Flood Mitigation System include avoiding:
Costly downtime from infrastructure repairs
Clean-up, remediation, and restoration of such incidents
Removal of hazardous materials such as asbestos
Tenant disruption and displacement
Some less obvious yet important advantages include:
Maintaining building Integrity
Often times when a leak happens, it can go unnoticed for a long period of time, which can deteriorate the integrity of your building’s infrastructure over time. By installing a flood mitigation solution, you can monitor the leaks inside your property and take immediate action when notified. Over time if your asset/building has been well attended to, your property can fetch a higher valuation than a comparable asset nearby that may be distressed due to damage over the years.
Automated Asset Protection:
Managing, maintaining, and monitoring a multi-story high-rise can be a laborious and daunting task. By leveraging technology such as a flood mitigation system to automate such arduous tasks, it can help reduce operational and payroll expenses.
Preventive maintenance and contractor truck roll:
By leveraging technology and installing a smart flow monitoring device as part of your Flood Mitigation System, you can effectively identify small leaks such as toilet and faucet repairs, issues with blow down cycles, and many other problems that can go undetected for long periods of time. It is estimated that 85% of properties lose 35% of their water due to leaks. As such, you can effectively reduce your contractor truck roll generating operational savings while also creating a preventive maintenance schedule that suits all stakeholders involved in managing and maintaining the property.
Leveraging Data Analytics:
By installing a Flood Mitigation Solution as part of your building, you can take advantage of the data aggregates that come from such a solution. For example, if multiple leaks have been identified on a riser over the last few years, this may be a great time to budget for a riser replacement in the next fiscal year.
Other operational advantages include:
Decreased water expenses
Reduced energy consumption
Improved environmental impact
Help achieving bold sustainable goals