August 5, 2016

Multiple agency involvement in fire risk mitigation, changing social attitudes with smart building technology, new resilient materials and resilient buildings, the new risks from electrical devices, changes in fire patterns related to climate change: these are just a few of the ways fire risk has changed over the last 350 years.

Several reports from Lloyd’s of London, the World Bank, the WWF with Allianz and the UK’s Met Office have pointed to increased fire risk arising from human population in areas associated with wildfire and extreme weather events.

Climate change is driving fire and flood risk higher but equally the higher risk in densely-populated urban areas, with greater collateral damage to multiple buildings (and the higher cost of each single claim) are all putting pressure on the insurance industry. In turn this is driving the need for new predictive models and ever-finer scale risk assessments.

Most industries evolve over time with factors like climate change, although occasionally they are propelled forward by unique and catastrophic circumstances. In the case of insurance and fire risk, the date 2 September 1666, is usually attributed as the single day that spurred the creation of the modern insurance industry.

Following the Great Fire of London the city had to begin the process of rebuilding almost the whole of the commercial centre within the old Roman walls. But as well as new buildings, improvements in hygiene and wider streets, the following year 1667, something else sprang up from the ashes, the world’s first insurance company.

London passed a number of laws at that time directly related to the Great Fire that attempted to eliminate such devastation from future fires. One local ordinance specified precise numbers of leather buckets, ladders and other firefighting equipment that each quarter of the city had to make available.

Another law allowed for the incorporation of an organization to indemnify for losses due to fire. This became the first insurance company, the ‘Insurance Office for Houses’. It was this company that led to the creation of fire brigades and fire-fighting teams with their own equipment and identifying badges known as fire marks issued to clients for display on their buildings.

The job of the private fire brigades was solely to put out fires in the buildings they insured. These mutual insurance societies proliferated with names such as the ‘Hand in Hand Fire and Life Insurance Company’ and the ‘Sun Fire Office’.

It is interesting to reflect that some of the basic principles still apply to fire risk and exposure management, although working through modern technology.

New predictive models for fire risk assessment

Today insurers have a better picture of the multiple drivers of fire risk, and there is more data available on the real drivers of risk: building materials, fire protection rating, proximity to fire hydrants or fire stations and socio-economic factors down to the household level and individual level rather than just the postcode level.

Nowadays insurers usually have the benefit of faster detection too, especially with fire prevention technology coming through connected buildings. There is also declining fire risk generally (with fewer flammable materials, fewer smokers and changes to household heating).

However this is balanced against the high value of the insured property today – especially in an area like London – and the greater risks from close proximity of other buildings. In many ways we have learnt how to coexist with fire, and keep ourselves safe from it, without necessarily becoming better at preventing it with practical risk management responses.

Having better data at the point of quote down to the individual building level, through solutions like our LexisNexis Map View, is one way insurers can have a clearer view of risk and be able to give incentives for risk mitigation measures, rather like the fire marks and fire brigades of years gone by.

Follow the link to the LexisNexis Risk Solutions website to find out more about how we support insurance providers.