Have to disagree with you on this one Dean. The elements of my instant water heater are nicrome wire I believe and the water surrounds them. No clay or anything between the water and the element.
So as the saying goes

Here are some pics of my water heater.
Here's what the whole unit looks like. Two elements for heating the water as it flows through the plastic tubes, plus the assorted electronics to make sure the water is at the right temp.

Here's an end view looking down one of the heating tubes (with out the element).

Here are two elements. The one on the left is the old style with a crimp connection. They kept breaking there. The one on the right is the newer style with a screw holding the lelement.

This shows how they are installed. Simply slide them in and fasten the two screws on top.

A bit of a better view showing how they fit.

Upside down, but shows the water connection. Plus shows the tubes were the elements are in plus the water tubes on both side. There are internal holes where the water flows through. Third picture you can see a little white spot in the tube without an element, on the right side of the tube.

And here are the specs of the heater.

So, water can flow over a wire with electric in it. As long as you don't complete the circuit to ground you won't get electicuted. Next time you see a lineman work on a high voltage power line, notice the the bucket he is in is a fiberglass bucket and not sheet metal or aluminum.
Bernd