How does the insurance industry view the implications of the Fire Safety Order? Douglas Barnett examines the evidence so far and looks at the role insurers can play in helping business owners to drive down fire losses.
The introduction of the regulatory reform (Fire Safety) Order has generally been welcomed by the insurance industry – so long as it is correctly implemented, of course. But there are several provisos to a wholehearted endorsement of the legislation.
The Fire Safety Order must improve fire safety in the UK and not simply be a budget saving exercise, and appropriate guidance must be available to businesses. While accepting that the risk based assessment approach is the right one, it must not go down the ‘tick box’ route. A related consideration is the role of fire risk assessors – how can the responsible person be sure that the person he or she is selecting is competent and has the appropriate qualifications and/or experience? This may be a relatively straightforward matter for large organisations which have the resources and infrastructure to comply, but what about smaller concerns?
It comes as a surprise to some but the vast majority of businesses in the UK are small ones. Of the approximately 4.5 million businesses, some 99.3% are classed as small – that is from zero to 49 employees. Only 27,000 are medium sized (50-249 employees), and just 6,000 (0.1%) are large with 250 or more employed.
On the face of it, fire is a diminishing problem, at least as far as the incidence of fire is concerned. Figures for the number of accidental ‘primary’ fires show a gradual decline from around 118,000 in the late 1990s to around 102,000 in 2005. The picture for deliberate fires isn’t quite as rosy, however, at around 75,000 in 1995, peaking at 102,000 in 2001 and then falling back again to around the 80,000 mark.
The true picture
It’s when we look at insurance claims and losses, however, we see that the number of fires alone can obscure the real problem. The cost of fire claims for commercial and domestic properties are running at record levels. Although they fell slightly from a peak in 2005 of over GB pound 1.3 billion to just over GB pound 1.2 billion in 2006, insured fire losses for commercial, domestic and consequent business interruption are near record levels.
While the suite of government guidance documents may be excellent, very few businesses we have visited are aware of their existence, and even fewer actually have used them. We need to ask whether at an average size of over 140 pages each, the fire safety risk assessment guides produced for organisations and business are too unwieldy for the non-fire safety professional.
As influencers, however, insurers have a big role to play in passing on knowledge and guidance to businesses, so they can mitigate these fire losses. Insurers visit around 100,000 UK businesses each year, so are well placed to offer advice, audit fire safety management plans and specify, test and audit fire suppression systems. Depending on your insurance company, it might provide online guidance, distribute risk management documentation free of charge, and offer consultancy services. As an industry, we have in-depth experience, statistical information and we like to talk to people! But it’s worth emphasising that we are not enforcers, and that insurance companies are businesses which are run along commercial lines.
What about those enforcers? Well, prosecutions by fire authorities under the Fire Safety Order have so far been minimal, though there has been a recent increase in the level of enforcement activity. Businesses that have been accustomed to the inspection regime under the previous legislation are commenting on the lack of visits. In the context of varying enforcement policies among fire and rescue services, we have to ask whether too many site visits have been dispensed with in the name of the brave new world of risk-based responsibility.
Mitigating loss
So what hazards do businesses face in terms of fire, and what can they do to help bring down their exposure to such losses? One of the most common causes of fire is from electrical installations, yet there is still no universal standard for the periodic inspection of installations and the selection of approved contractors. Similarly, there is a lack of awareness on the part of businesses of the regulations to control dangerous and explosive substances.
Automatic detection and alarm systems are a primary method used by building occupiers to detect fire and evacuate occupants. But are the worst ‘false’ alarm offenders being properly targeted and how many are connected to remote alarm receiving centres?
Allied to the Fire Safety Order is the Integrated Risk Management Plan that each fire and rescue service is required to have in place. But how many building owners are aware of their local IRMP, and have they taken into account its implications when developing their own fire risk assessments?
Another growing contemporary risk is linked to the higher number of migrant workers in the UK, some of whom do not have a good command of English nor, necessarily, an understanding of how things work here – such as how to summon the emergency services. Apart from the more obvious cases of workers being house in crowded, sub-standard accommodation, there are also less obvious workplace hazards. These included issues such as whether instructions are provided in multiple languages for night staff at hotels.
Fire engineered buildings may also cause concern among insurers. Issues include:
– the identification of fire engineered buildings
– continuity of building managers and their understanding of engineering protection systems
– evaluation of fire engineered calculations
– fire Engineering being utilised for financial savings
Questions arise such as how often should the fire engineering strategy of a building be re-evaluated to make the fire risk assessment adequate? If insurers have difficulties with such questions, what chance do non-professional business owners have?
So what are the priorities in order to ensure that the move from prescription to a risk based approach results in a reduction in fire losses? We need to continue to develop appropriate guidance for different business types, so that such guidance is tailored to their specific environments, activities and other circumstances. We also need to ensure that we better understand the levels of competence needed across all areas, and that we don’t simply create a ‘consultants charter’ by the need to comply with the Fire Safety Order. All this is going to need more frequent and regional discussions between building owners, their insurers, fire and rescue services and, in the case of new buildings, building control authorities.
Douglas Barnett is head of customer risk management at AXA Insurance UK plc. This article is based on a presentation he gave at Firex South in March.
MORE DATA NEEDED
Speaking at last year’s Fire Summit in London, Roy Watkinson, chairman of the Fire Protection Association and technical & commercial insurance director at AXA Insurance, called for more to be done internationally to assess the cost of fire. There have only been four major studies into the economic cost of fire; by the NFPA in the United States, by the Danish Energy Agency; the National Research Council of the Canada Fire Research Laboratory; and by the Department for Communities and Local Government in England & Wales. In order to do this on a meaningful basis, however, there needs to be a common reporting format to enable global comparisons and aggregations.
Commenting on insurance industry figures which show that – with the exception of 2003 and 2004 – insured fire losses have been rising since the start of the decade, he said that property insurers were concerned about the trend. Although they welcomed the advent of Integrated Risk Management Plans, they were concerned about the speed at which their implementation would have a downward effect on fire losses. “I am worried that we are likely to see an increase in large fires and possibly fire deaths in the next few years. Maybe research will uncover why this is happening,” said Mr Watkinson.
In a Q & A session following his presentation, he addressed the lack of incentives for some businesses to fit sprinklers. This was partly due to the commercial nature of the insurance market, where premiums are already good value so discounts mat be modest. But he also cited examples of reluctance among users, such as people who moved into a premises fitted with sprinklers and ask for them to be switched off. “We seem to have a culture against sprinklers in the UK and this is something that needs to change”.
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