Too hot to handle?

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Over the past few years insurance costs for commercial buildings have risen beyond inflation. High profile incidents such as the Buncefield fuel depot explosion in Hertfordshire in 2005, have continued to drive premiums higher.

Laurie Sice of says: “The single biggest risk factor is fire, and with an estimated 2,500 warehouse fires annually in the UK the threat is far from remote.

“Sadly nothing is more likely to bankrupt a business than a fire, with over 90 per cent of businesses failing to recover from a major fire loss. So even full insurance cover including consequential loss is rarely enough and companies should focus on preventing a fire.”

In developing the modern distribution centre, the logistics industry has unwittingly created the ideal scenario for the maximum damage should a fire occur. NDCs and RDCs mean that all the company’s eggs are in one or few baskets, instead of being spread around a number of locations. Even if the goods being stored are not flammable, packaging materials will quickly ignite and help to spread a fire.

Research by the BRE shows that a fire may reach the top of 10m high racking in as little as two minutes. Crucially a typical fire brigade response before being operational on site will be around 20 minutes, according to the BRE.

The key questions are therefore, what can a company do to keep insurance premiums under control, and what steps can they take to avoid the need to make a claim.

Sice says: “Insurance underwriters will favour companies who have shown they are tackling the problem of fire risk and are ready to present what they have done to justify a lower premium.

“Having an internal risk manager to take responsibility for fire risk issues will support your case and a broker may undertake a detailed Property and Business Interruption report, which will help when dealing with other insurers.”

While the use of the latest fire-inhibiting materials such as polyisocyanurate foam panels during construction will help reduce insurance costs, most companies are concerned with operating from an existing structure.

The single most effective way to reduce fire risk according to Sice is the use of sprinklers. Although not yet a legal requirement, sprinklers are without doubt essential to reduce fire risk he says. The original concept involved installing sprinklers at roof level for in-rack protection, but there are more recent developments on the market such as ESFR (Early Suppression, Fast Response) systems. These involve using high-density discharge sprinklers at roof level which removes the need for in-rack sprinklers. Warehouses of 200,000 sq ft or less do not currently legally have to have sprinklers fitted.

Following the tragic loss of life at a Warwickshire warehouse fire last year, the Local Government Association and Chief Fire Officers Association (CFOA) called on the government for a review of how sprinklers are used in buildings.

Steve McGuirk, Cheshire Fire and Rescue Service’s chief fire officer and CFOA’s president, said: “Recent events should remind us all that protecting people from fire is not just confined to the occupants but also to those responding to incidents, be they fire-fighters or other emergency service responders.”

The cost of sprinkler systems is being hit by the rapid rise in steel prices. According to David Smith of Alpine Fire Engineers, steel prices could rise by as much as 75 per cent during 2008, adding significantly to the cost of a sprinkler installation which can use several kilometres of steel piping. However, against the cost of installation should be weighed the costs if there were a warehouse fire.

In March this year a fire started in a large furniture manufacturing unit however, the operation of five sprinkler heads in the workshop and corridor prevented the fire from spreading to a nearby store containing foam and seat cushions. The managing director of the affected company says: “We are a company with an annual turnover of £10 million. At times it seemed that paying for installation, maintenance and testing of the sprinkler system was a bit over the top but we are delighted that it has paid dividends for us now.

“We do have contingency plans in the event of major disruption but we would not have been able to cope with the loss of the factory. In my opinion the sprinkler system saved us from a major loss and damage was limited to about 50 sq ft by the operation of just five heads.”

In addition, says Sice, the way in which the warehouse is designed internally will affect the extent and amount of damage a fire may cause, a factor that insurance companies will not fail to spot.

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