Talking Fire Risk

A fire in your business can result in a huge inconvenience or catastrophic loss. Consequences of fires include damage to property, equipment, employee injuries, and business interruption, just to name a few. It is imperative that business owners understand the risk commercial fires pose to operations and strategize accordingly for the possibility of such an event. Nevertheless, many commercial fires can be avoided by taking the proper fire prevention steps. The Insurance Information Institute reported that (iii) Structure Fires costs reached an estimated 12.7 billion dollars in 2021. This total does not include costs related to wildfires. With fires being one of the most common and expensive commercial insurance claims, businesses must take measures to protect themselves financially and physically.

Commercial property insurance pays to repair or replace your building and business property damaged by a fire, storm, or other event covered by your policy. There are three levels of coverage: basic, broad, and special which provide different levels of coverage. As an insured, it is important to know how your property is covered. Commercial property policies provide either replacement cost coverage, actual cash value coverage, or a combination of both. I recommend replacement cost coverage as the better option. An explanation why is below.

• Replacement cost coverage?pays to repair or replace your property at current costs. This means the policy will pay enough to rebuild your building and replace your property with new items, even if the cost is more than what you originally paid.
• Actual cash value coverage?pays replacement cost minus depreciation. Depreciation is a decrease in value because of wear and tear or age. If you have actual cash value coverage, the policy might not pay enough to fully rebuild your business.

Since fires can present huge risks for business owners, it is important to think strategically on the impact a fire-related occurrence can have. Here are just a few examples. Business interruption coverage - this pays for the income you lose if your business can’t operate normally because it was damaged or destroyed. Ordinance or law coverage?– this pays extra construction or repair costs to meet current building codes. This is commonly overlooked in risk strategies leaving owners holding the bag to cover cost related to new building codes that must be met. Valuable papers coverage – this provides limited coverage for your business records and other valuable papers.

Even though your business property insurance offers financial protection from fires, it is important to reduce the risk of one occurring to begin with. Working with a risk advisor who understands prevention and mitigation is paramount. Also, building owners are responsible for having mitigating procedures to keep fires from spreading or hurting anyone as a regulatory requirement by agencies like the Occupational Safety and Health Administration (OSHA). The National Fire Protection Association (NFPA) has great resources available for free which provide information on how to reduce risk and increase fire safety. Here is a link to the free access page . Below are some additional helpful tips to get you started.

• Inspect your fire extinguishers on a regular basis and make sure they’re in compliance with local fire codes.
• Install sprinklers or other fire suppression systems, and ensure they are inspected regularly.
• Train employees on equipment and where it is located.
• Ensure sprinkler heads are not damaged or painted as this can affect operation.
• Maintain unobstructed exits and keep incompatible materials separate. See SDS sheets for information.

Approaching your fire risk with a strategic mindset can have a positive impact on your operations. Business owners can transfer risk and alleviate the financial burdens that come with incurring losses. On the other hand, the best way of avoiding a loss is by means of prevention. Having a robust fire prevention program in place can accomplish this goal. If you have not discussed your commercial fire risk strategy recently, I encourage you to do so as soon as possible. Contact me if you have any questions or concerns about your program.