Flaking/cracked OHR sensor

That's nuts. On the Forerunner 235 forum, people saw this happen to their watches as well. Might try to get it replaced under warranty; personally I"d wait until something else fails on the watch, or you're closer to the end of your year, but that's just me. It's a PITA living without a watch, especially if you're training for a fall race.

I'm also concerned it affects waterproofing, and if I wait to request warranty that will be an issue

Contact Garmin support. I had the same issue on my Fenix 3 HR. It is a know issue with bad batches of epoxy. They have an option where you can put a deposit down and they will ship you a new watch before you send them the old one. When they receive your old one they will refund you the money. It is a great option if you don't want to be without a watch. At this point they aren't backlogged on orders though, so depending on where you live you would get your replacement watch in about a week if you chose to send yours in first. I live in Oregon so it took about 5 days to get the replacement they sent from their headquarters in Olathe, Kansas. If you live closer to the US Midwest you would get it faster.

Garmin support said that I'm not eligible for RMA because of where I live, but keep me appraised of what support tells you so I know if it's worth shipping mine to a friend for RMA!

Same flaking happened with my 735xt. Started in April, Garmin support told me that as long as not actually cracked, to keep and eye on it, but don't worry unless it affects function. I have swum 200k since with it. All of the non-shiny material has flaked off, leaving just the shiny plastic. It has not affected its function. That being said, if Garmin does offer to replace for free, I'd likely do it.

Interestingly I did crack my screen slightly shortly afterwards (head on collision in pool), but it is hardly noticeable and the film screen protector has kept it completely waterproof even with diving starts and some rough water open water. Garmin USA offered to replace with a refurbished watch for 110 USD, but I decided to wait and see if needed (I had bad luck with a refurbished Garmin Swim earlier). So far, so good.

Bought 735xt in July 2016 and damage is similar. Cracked back heart sensor. The cracks were evident before the plastic label peeled off.
Have sent email and await reply. Maybe outside of warranty but I have taken care of this watch and at nearly £400 this product does not seem fit for purpose.
will update on outcome.ciq.forums.garmin.com/.../1293394.jpg

To continue further discussion, please post in the following thread.

https://forums.garmin.com/forum/on-the-trail/wrist-worn/fenix-5x/1284466-5x-sensor-cracks

More than 2 years later, Garmin still could not resolve the issue and is still selling products with the same fault. See e.g. here for 945: 

https://forums.garmin.com/sports-fitness/running-multisport/f/forerunner-945/172337/945-sensors-cracking-flaking

I had the same problem in november 2020 with a Garmin 735XT that I bougth in 2019, plus the screen completely shutdown. However, today 02/12/2020 I approached to technical support, in Santiago de Chile, and they changed for a brand-new watch of the same model, even when the warranty expired in july 2020. 

Great work of the Garmin team to extend support for problems or defects that are not generated by bad usage of the device.