Caroline Jordan reveals how the government's reform of the fire services has shifted the onus onto insurers and policyholders

Imagine a factory going up in smoke with no fire engine to be seen. If nearby buildings and lives are not at risk, this image could soon become reality following fire service reforms.

In 2002, academic Sir George Bain headed a team responsible for a framework of 56 proposals for the reform of the fire services - covering everything from manning to pay and efficiency.

Since then, deputy prime minister John Prescott has overseen the implementation of the reforms, including amending the Local Government Bill, allowing authorities to cut the number of fire personnel and close fire stations that are under-used.

Fire service unions have welcomed the approach that risks should be based on saving lives rather than property, but at the same time are unhappy about limited capital investment and certain brigades being forced to merge.

There is no doubt that in the future, the reforms could lead to more total loss claims. Some insurers, therefore, want more dialogue, both with the government and the fire service.

But Malcolm Tarling, spokesman for the ABI, says there is no organised lobbying. "We don't want to get into the political field with this."

He adds: "We can understand protecting lives over property, but we want to see a common sense approach. It has been shown that reform is needed in some areas, but we would urge that as full a service is provided as possible."

Kevin Pallett, managing director of Fusion Insurance, wants the ABI to take a stronger stand. "We pay enough as insurers. The money the government makes from insurance premium tax should be used to fund better health and safety measures."

He says insurers must accept that fire service response will increasingly be based on risk-based assessment.

Pallett says: "From a health and safety point of view, it seems that fire brigades want to place even more emphasis on protecting their employees. We cannot walk away from this. We need to understand what is happening and price cover accordingly."

Pallett says there is already evidence that fire brigades in some parts of the country are taking a more cautious approach to extinguishing fires where there is no threat to life. He says: "Underwriters will start looking at the attitude of the local fire brigade and this will come into pricing risks."

He adds that policyholders may be expected to invest more in fire prevention.

"Many firms cannot pay for sprinkler systems to be installed, but fire breaks and fire doors can make a difference."

Chris Hanks, general manager for Allianz Cornhill Commercial, agrees that businesses of all sizes will need to be more involved in preventing fire losses. "In the US I see much better levels of fire protection, a broader range of sprinkler protection and a keener interest in the protection of property than in the UK."

He adds: "I believe we are entering a new era of insurer involvement in the protection of property. If premises are not protected properly we will no longer insure them."

Hanks adds his name to the list of those concerned about the reforms and the implications for insurers. "The predominant factor for the fire brigade is saving lives, and rightly so. However, insurers fear that as budgets get squeezed and cuts are made, we will be much more vulnerable on risks where we once felt secure."

False alarms

False calls from fire alarms have been a major bugbear for the fire service in recent years. Officers would attend a call only to find that a faulty system was responsible.

A tough line is now being taken on this issue. If there are repeated false calls from the same alarm it will be ignored in future - the onus is on property owners to ensure they have reliable systems installed.

As part of the reforms, fire brigades will now aim to cut the speed and number of personnel responding to alarm calls, although unions have warned that this is a high-risk policy.

However, in other areas taking a strong stance has been shown to be effective.

Research by the Association of Chief Police Officers shows that police attended 100,000 fewer false alarms in 2004 compared with 2003.

According to Hanks: "Recent figures suggest that 25% of all calls to the fire brigade were false alarms from automatic fire alarms and 98% of calls from these needed no fire fighting action at the scene. There is obviously a problem here.

"It is of huge concern that we have put risks on our books in the expectation that the fire brigade will turn up to an automatic alarm call, only to find the service withdrawn."

He says greater clarity is required, arguing that if this is not forthcoming insurers will no longer issue premium discounts to customers that have automatic fire alarms.

Given that there has yet to be a loss of life in the UK in a building which has a sprinkler system installed, Hanks says he would like to see government incentives to help firms pay for sprinklers.

"I know many of our customers may resist this on grounds of cost. If the government is really serious about reducing fire costs in the UK then sensible and attractive tax and business incentives should be provided."

Royal & SunAlliance (R&SA) began campaigning last year for businesses to install better fire prevention measures, saying more than £500m of fire damage and associated business interruption costs were caused each year.

R&SA estimates that if sprinklers alone had been installed, the cost of physical damage could have been reduced by more than 80%. Over 40 million sprinklers are installed worldwide every year, with the UK accounting for just one million of those on average.

R&SA underwriting director for property Graham Heale concedes that sprinklers can cost thousands of pounds, but says: "We expect clients to implement more affordable measures.

"These could include regulator inspections and keeping storage and warehouses areas separate from production. With the reforms taking place, these measures will become even more important."

Lawrence King, risk control manager at Fusion, adds: "Policyholders will have to spend more in some cases. In terms of burglar alarms, many have been forced to upgrade their systems as the police will not come out.

We can expect to see the same happen with fire alarms. The reforms could help drive quality."

Longer term, insurers are likely to have more dialogue with fire services to find out the plans of individual brigades and how they will be coordinated by local authorities. Gregor Elrick, property manager for Zurich, says: "In our briefings we will cover the reforms as well as issues such as arson. We need to make sure we are fully up-to-date."

Elrick adds that insurers may also need to look at their reinsurance arrangements in the longer term. "Some insurers base risks on the fact that the fire service will come out and attend to a fire - if this does not occur they will need to make adjustments."

Hanks concludes: "There is not enough collaboration with insurers to ensure adequate arrangements are made to protect the risks we insure.

"Insurers are not just there to pick up the final bill when something goes wrong - we are also there to make sure that events do not happen and premises are protected before substantial loss or damage is incurred."

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