Water damage: the number one loss for SMEs — how to avoid claims being denied

Introduction

For a small or medium-sized enterprise (SME), water damage can slow down operations, damage strategic assets, or lead to unexpected costs. While businesses are often well-insured, denials or reductions in compensation frequently occur when the prevention, documentation, and reporting process is unstructured. This practical guide helps you effectively manage, document, and track your water damage claims. By reading it, you will understand the relevant coverages, anticipate compensation denials, and implement an actionable method that can be applied immediately.

Why water damage is a major issue for SMEs

A common disaster in businesses

In insurance practice, water damage is among the most common claims in commercial buildings, sometimes even more frequent than other traditional claims such as fire. A risk specialist points out that water damage occurs more often than fire in business premises, based on claims experience with international insurers.

This type of disaster can come from multiple sources: burst pipe, heating system leak, roof infiltration, sewage backup or even failure of household appliances connected to water.

Impact on business

For an SME, water infiltration can temporarily halt production, damage inventory, or render spaces unusable. Without adequate insurance, the costs of repair, restoration, or relocation can significantly impact cash flow.

How does insurance cover water damage in Switzerland?

What is meant by "water damage" in insurance?

In the context of property insurance in Switzerland, water damage is defined as damage caused by water inside a building or to personal property, unrelated to an extreme natural event. This can include a burst pipe, an overflowing appliance, or water seeping in from an internal plumbing system.

In contrast, flooding or damage due to a natural phenomenon (flood, high water) falls under other coverages, or specific natural damage insurance in some cantons.

Relevant contracts for an SME

For a company, several insurance components may come into play:

1. Property/Movable Property/Real Estate Insurance

Business property insurance, covering both premises and equipment, generally includes accidental water damage. In Switzerland, property insurance for SMEs is not mandatory (except where contractual or cantonal requirements apply), but it provides a fundamental layer of protection against significant losses.

2. Business Interruption Insurance (Business Interruption / Loss of Operations)

If water damage prevents the business from operating normally, this coverage compensates for lost revenue or additional costs to maintain operations.

3. Civil liability insurance

It covers damage caused to third parties due to water damage (for example, damage to a neighbor or customer).

Common coverage limits

Insurers frequently exclude damages resulting from inadequate maintenance , normal wear and tear , or a lack of preventative measures. The concept of gross negligence may lead to a reduction or denial of compensation if the loss could have been avoided with reasonable diligence.

Guidelines and checklist: managing your water damage risks

Assess and prioritize your water risks

Before a disaster occurs, assess the points of exposure:

• List the critical water points : main taps, sanitary facilities, boilers, machines connected to water.

• Identify sensitive infrastructure: basements, archives, server room.

• List the business consequences : production stoppage, customer impact, lost data.

Concrete prevention measures

1. Periodic inspections of hydraulic and heating installations.

2. Early detection : leak sensors and automatic shut-off valves.

3. Planned maintenance with written records of interventions.

4. Training staff in emergency procedures (turning off water/electricity).

Documentation checklist (to be produced in case of a claim)

What needs to be documented immediately after water damage:

• High-resolution photos of all affected areas.

• List of damaged property (description, location, approximate value).

• History of maintenance interventions on the installation in question.

• Written statements from witnesses or staff present.

• Chronology of events (time of observation, actions taken).

Mini case studies

Case 1 — Administrative office: internal pipe leak

Early one morning, a small business discovered a significant water leak from an internal pipe near the server room. Thanks to installed sensors, the alarm was triggered, and staff quickly shut off the water supply and secured the electricity. Photographic documentation and records of maintenance performed in the previous quarter facilitated the claim process. The insurer agreed to provide full compensation for the equipment and the business interruption.

Case 2 — Goods storage: slow, undocumented infiltration

In a small or medium-sized enterprise (SME) warehouse, a slow leak through the roof went undetected and undocumented. When the stock was severely damaged, the company struggled to prove the long history of the problem and the absence of any maintenance negligence. The insurer reduced the compensation, citing insufficient maintenance . This situation underscores the importance of formally documenting inspections.

Common mistakes and how to avoid them

Error 1: lack of a structured prevention plan

Solution: Install a water facility monitoring plan and link it to your risk governance.

Error 2: Insufficient documentation during a claim

Solution: Activate your evidence checklist immediately and keep all evidentiary material unaltered.

Error 3: Reporting the claim late

Solution: plan an internal reporting protocol within 24 hours of the event being observed.

Mistake 4: Confusing water damage with natural damage

Solution: be precise about the origin (internal vs external) to mobilize the right coverage.

Questions to ask your insurer/broker

1. Does my policy specifically cover accidental water damage in the workplace?

2. What maintenance requirements are needed to prevent a serious error ?

3. What specific documents does the insurer require for a water damage claim?

4. How does my insurance cover business interruption due to water damage?

5. What are the deadlines for filing and submitting evidence?

6. What are the main exclusions related to water damage?

7. Do I need additional coverage for high water/natural events?

8. Are there any incentives/rewards for water detection devices?

9. How is the insured amount determined for my property and buildings?

10. What is the impact of the age of the installations on the coverage granted?

Conclusion

For an SME, water damage should not be overlooked. It represents a tangible threat to business continuity and the bottom line . By adopting a structured approach to management, documentation, and monitoring , you significantly reduce the risk of claims being denied or reduced and ensure appropriate protection. The next step is to integrate these guidelines into your internal risk governance processes and review your insurance portfolio with these issues in mind.