Over the past decade, insurers have reported significant cost increases associated with water damage claims. In Australia, research from Chubb reveals that the average claim for water damage increased by 72% in the five-year period between 2014 and 2018, rising from $17,627 to $30,361. While no single reason accounts for this escalation, the rising costs are attributed to a combination of modern design flaws, less resilient materials, and systemic failures in the restoration industry.

The Resilience Gap: Hardwood versus Engineered Materials

One of the most significant factors in claim inflation is the shift in construction materials. In previous decades, hardwood was the standard for framing and flooring, providing a resilient substrate that could often dry naturally without the occurrence of prolific mould growth. 

Hardwood is less likely to warp, distort, or swell compared to modern alternatives. In contrast, modern residential construction relies heavily on pine and engineered products such as MDF, particleboard, and plywood. These are essentially pre-digested cellulose materials that provide an ideal nutrient source for fungi. Similarly, modern plasterboard, which is lined on both sides with paper, is a primary food source for mould. When these materials are impacted by water or exposed to high humidity for prolonged periods, significant microbial contamination can occur within days.

Plumbing Failures and Infrastructure Mismatch

The failure rates of braided flex hoses and other inferior plumbing fixings have been well documented as major contributors to water damage blowouts. These failures often occur in “tight” energy-efficient buildings that are more likely to trap water and water vapour. In older homes, moisture could often leak out or evaporate naturally, but in modern properties, moisture is frequently trapped, leading to condensation and secondary damage through environmental mould growth.

Furthermore, the installation of modern air conditioning systems into older, uninsulated buildings is a recipe for microbial issues. When systems are oversized, they cool the space rapidly and cycle off before sufficient moisture is removed. This results in a scenario where surfaces are cool but indoor humidity levels remain high, exceeding the 70% threshold required for environmental mould growth.

Industry Challenges and Pricing Models

The move to a builder and restorer model around 2014 has impacted the quality of restoration outcomes. The hourly rates for labour that many restorers must meet often result in little or no gross margin on projects unless they increase costs through higher than required levels of equipment, consumables, or labour hours. This provides little incentive to turn the project around quickly, potentially leading to prolonged timelines and cost blowouts.

The industry is also challenged by a proliferation of unqualified consultants and laboratories. Since 2015, the number of laboratories in Australia has grown from a handful to over twenty, yet many provide commentary on contamination without the necessary context of the property. This has led to scenarios where insurance companies have purchased or demolished properties due to alleged contamination based on inadequate or incorrect assessments.

Strategic Recommendations for Mitigating Blowouts

To control the exponential escalation of water damage costs, the industry must adopt a more pragmatic, science-based approach:

• Rapid Response: Extracting excess water and beginning the drying process immediately is crucial to limit the risk of microbial contamination.
• Qualified Assessment: Insurers should demand that only vetted and qualified professionals conduct indoor environmental assessments.
• Defensible Scoping: Consultants must provide supporting evidence for their decisions that aligns with recognised industry best practice and published standards.
• Seeking Truth: Stakeholders must have the backbone to question results and stand up to misinformation that is not related to the claim event.