Insurance is a risk management business where the policy holder transfers the financial risk of incurring a loss to a third party (an insurer) for a price (annual premium). To calculate an appropriate premium, the likelihood of the negative event (insured peril) occurring and the cost of meeting the loss (exposure) is considered.
The insurance market operates on the basis of the level of risk that is presented and there is clearly a link between risk and terms and conditions insurers are prepared to offer.
The actions of government can have an impact on insurance costs including setting the level of Insurance Premium Tax through to the way in which buildings are designed and how public policy is enacted including emergency service response.
Insurers have a role to play and pay out in excess of £1bn in fire related claims each year (ABI). Insurers remain concerned at the impact of arson as whilst the number of fire related claims are decreasing, the cost of these claims are increasing.
By their very nature incidents of arson tend to result in larger fires and insurers are therefore clearly key stakeholders in any arson reduction strategy.
There is good practice identified by the ABI and FPA (who have remained strong supporters of the APF), as have some individual insurers, it is felt that by acting more collectively, the sector could make an even stronger impact to reduceof the number of deliberately set fires.
It is recognised that more favourable terms and conditions may be obtained by policyholders who have good arson deterrent measures and good arrangements for controlling the spread of fire in the event that it does occur.
This has benefit for insurers as they improve the quality of risk, it makes sense for the insured as they are less likely to suffer from the impact of a major fire and also works for the Government as business rates continue to be collected which would not be the case if the company was not in business.
It is recognised that arson is more of a problem for insurers who cover commercial buildings than it is for those who cover residential buildings. According to the ABI, 29% of commercial fire claims in the UK can be considered as ‘deliberate’ whilst 4-5% of domestic fire claims in the UK can be considered as ‘deliberate’.
The ABI continues to encourage their members to develop a robust dataset and collate deliberate and non-deliberate fire claims and costs going forward. Commercial insurers therefore may want to take an even greater interest in risk mitigation and arson prevention approaches.
Given that 45% of all fires are classed as deliberate by the Fire Service and insurers pay out £1b in fire related claims each year, there is a collective benefit in gathering better information and statistics on the cost of arson to insurers. The Home Office could be a key enabler in releasing IRS data to organisations like the FPA so that they may be able to better match incidents of deliberate fire setting with cost to insurers of individual claims.
There were examples offered where the ABI members had been proactive in driving down arson with customers or where the FPA or ABI had supported insurers through industry analysis or initiatives but it was hoped to have drawn out more examples.
A refresh of the membership in 2017 has seen the British Insurance Brokers Association join the forum. Given their role in advising commercial policy holders as to risk mitigation approaches, this is very much welcomed.