Claims up in flames?

The tragic deaths of service staff at the fireworks warehouse blaze in East Sussex at the weekend brought home the risks fire brigade staff face when commercial property goes up in flames. And it was these concerns that led to the brigades' decision to give less priority to commercial fires.

This is forcing insurers to re-think their fire cover and the risk management actions they will insist upon if they are to maintain cover at competitive rates.

A key tenet of the employers' - and government's - argument during the Fire Brigades' Union dispute three years ago was to change the emphasis of the 50 or so different fire and rescue services around the country. Saving lives, rather than property, was to become the priority - something established by the Bain review that took place just after, combined with a heavy influence from the Treasury.

National service standards based on property (from the 1947 act) were scrapped in favour of local Integrated Risk Management Plans (IRMPs) based on saving lives. Many of these resulted in brigades sending smaller appliances or, in the first instance, just an observer, to commercial fires where no immediate lives were at risk. Some also claim as many as 90% of automated fire alarm calls are false alarms so reduce their response as a result.

Brigades had suffered a series of maimed and killed fire fighters and their own health and safety obligations persuaded them that containing fires to stop them spreading, while allowing buildings to burn to the ground, should replace plans to aggressively combat fires to minimise financial losses.

"You can understand why they won't commit men inside if there are no lives at risk," says Tony Hutchins, Allianz Cornhill Commercial's property manager. The deaths at the weekend will emphasise that.

But insurers are concerned that they are starting to see more large losses and more total losses than they used to. "In some cases, such as for shopping centres and hospitals, the situation has improved but industrial estates overnight are less well served. We are sensing - and this is a market thing - that more fires now result in total losses," says Hutchins.

Allister Smith, property risk manager at Norwich Union, agrees. "We are certainly seeing larger fire losses in terms of the exposure and impact. We are trying to establish what factors had an impact on these larger losses," he says.

Insurers are flagging up that the economic loss to the local community of a major employer being out of business does not feature in most local brigade risk management plans. "Life safety is the first priority, both in terms of occupants and of the fire service, but the economic and social costs must also be a driver of fire brigades' plans," says Smith. He flags up a National Audit Office report that confirmed 80% of firms affected by a major fire were out of business completely within five years. "A total loss of a large employer will have a detrimental effect on a local community," he says.

The National Fire Protection Association (NFPA) has been mapping fire brigades' response times and through Infires, its collaboration with the insurance industry, it can allow insurers to find out response times by postcode. But there is also an issue of response size. Some insurers also suspect that costs are driving the response size, rather than risk management plans. In areas where the service is predominantly run by retained fire fighters - those with other jobs who drop everything to become fire fighters when the alarm goes off - there are question marks over whether the lack of response is to save paying the retained crews. All of this information is now being collated to paint a clearer picture.

But Jonathan O'Neill, NFPA managing director, is also concerned that when it comes to the new fire prevention role of brigades, emphasis is concentrating on domestic, rather than business fire prevention. And things are set to get worse. Fire inspections by the local brigade will be replaced by companies nominating their own 'competent' individual to inspect themselves. "The fear is that some businesses will not view fire safety the way they did when they knew a fire officer would be round with the clipboard every now and then," he says. There have already been cases where businesses fitting fire alarms have run cables through what were secure firebreaks, effectively negating those breaks through the drilling.

Nick Black, corporate major impact team adjuster with Crawfords, says that while fire losses may be rising because of the reduced responses, where insurers have secured better building design, fire safety measures and risk management planning from their commercial property clients, reductions in losses can be huge.

That is something the industry is tackling through Infires. It is lobbying hard for better constructed buildings, for secure firewalls within them and other physical fire protection standards. It has had some success and expects its design guide to be included in the new government-produced Approved Document B on fire safety. There have also been a series of meetings with the chief fire officers' association and suggested improvements to each individual brigade's risk management plan.

Insurers will also have to make more demands on their insureds. "Alarms only alert the fires service and if they are not going to come to an alarm then we might have to demand sprinkler systems and other fire suppression systems for smaller risks," says Allianz Cornhill's Hutchins. "It might be that some risks get priced higher."

NU's Smith says regional price variations are a real possibility. "You could have differential pricing for different parts of the country because we are concerned about the variations we sense in some of the IRMP planning."

Insurers set up the first fire brigades as an innovative solution to rising commercial property fires. Now that the fire brigades are taking the self-same fires less seriously, the innovation that led to those first historic firemarks being nailed outside insured buildings is being called upon again to solve the current crisis of exploding fire losses. And last weekend's disaster will continue to shine a spotlight on the situation. IT