Deepening drought highlights fire risks

By: Aon South Africa

With drought conditions deepening and the Western Cape now facing level 5 water restrictions, fire risks have increased dramatically, demanding more stringent fire risk mitigation and planning. Stringent compliance with fire safety regulations is critical, along with proactive measures to reduce fire risks as far as possible.

This is according to Harold Bond, Deputy Branch Manager of the Cape Town branch of Aon South Africa, a leading global insurance brokerage and risk advisors.

“With water levels at critically low levels, it’s likely that local municipal water supply to fire protection systems and hydrants will be negatively impacted both in terms of flow rate and pressure levels. This has serious implications for sprinkler systems and even the local fire-fighting teams, and could see the outright loss of assets rise exponentially should a fire break out,” explains Harold.

Fire is often an underestimated risk despite the fact that it’s a common and often devastating peril – the water shortages significantly amplify the likelihood of this risk. It’s essential that business operators comply with the fire regulations relevant to their operations, and put measures in place to mitigate the risk as far as possible. Failure to comply with the statutory requirements and codes of practice for fire protection can leave business stakeholders in severe financial crisis and with potential legal implications.

“The costs arising out of the loss of life, assets and business interruption can amount to millions of Rand in damages and liability claims. Despite the risk to business continuity, financial security and brand reputation, many business owners are not realising the full domino effect that a fire poses their business sustainability, and the fact that the water restrictions demand proactive and stringent fire risk mitigation measures,” says Harold.

Large industrial sites and warehousing complexes are at particular risk, since a fire on one site can soon create an inferno due to the exposure of many closely situated site buildings. “Industrial parks in Cape Town are home to many central distribution points for retail and industrial businesses. While this is a central trend in supply chain management, it amplifies the impact of fire risks as much larger volumes of stock and equipment are housed in one area, posing significant implications not only from a loss of assets perspective, but also for business interruption and the ability of the business to keep trading and earning an income should things go wrong,” adds Harold.

A comprehensive fire prevention strategy linked to an insurance program that fully addresses the needs of a business is critical. A clear description of a business and its operational environment is central to the drafting of a well-conceived insurance schedule as the type of materials that are kept on the premises greatly affect the associated fire risks. A comprehensive fire risk assessment will greatly aid in identifying fire hazards and reduce the risk, in addition to determining what physical precautions and management processes should be in place. It’s also very important to have an accurate assessment of the replacement costs of buildings, contents, vehicles, IT, stock and other assets, particularly in the event of a catastrophic loss.

“The Business Interruption (BI) aspects of fire also need careful consideration. Damage to the structure of the building is one thing, but a fire often damages contents such as raw materials, machinery and completed stock awaiting delivery. It disrupts the entire distribution chain and has far reaching consequences for your clients, who may have to source alternative suppliers if you’re unable to deliver on time,” Bond illustrates.

It is crucial to ask the right questions such as how long it would take to get the business up and fully operational if the building burns to the ground? How do you cover staff salaries and overhead costs while the business is not generating income? How does a business replace raw materials, stock and completed orders that were damaged or destroyed in a fire? What associated costs will be incurred for keeping, maintaining and recovering your market share after a catastrophic event?

“By linking this to an aligned insurance program that covers virtually all the what if scenarios of not only the physical damage but the knock-on implications for business continuity if a fire does occur, clients get to experience the real value of a comprehensive risk analysis with a professional risk advisor,” concludes Harold.