Far from Standard

Recent news in several areas of Canada has reminded the insurance community that public fire protection is far from standardized in this country. Many insurers have forgotten this and have fallen back into the lazy habits of old, which led to the peril of fire being a grave concern across the industry.

The trouble is that almost all Canadian citizens, underwriters included, assume public fire protection is standardized and that simply being Canadian entitles that person to some level of fire protection.

Nothing could be further from the truth.

In fact, the insurance community of Canada came together in 1883 to form the Canadian Fire Underwriters Association specifically to bring order to the chaotic model of public fire protection in the country. The model that was created included having a single index of published fire protection levels that all insurers agreed to use to set premiums.

Municipalities, realizing the amount of public fire protection they provided would be measured by an outside agency, became fairly diligent to invest in public fire protection capacity and mitigate fire risk by implementing and enforcing building and fire codes.

MODEL APPROACH

The way the model of public fire protection works is fairly ingenious. Municipalities manage their fire risk and provide measurable levels of public protection, fire insurance grades are set, and the insurers adjust capacities and premiums to reflect the level of risk and protection on the ground. The whole system is a positive feedback loop that results in insurers being able to underwrite more accurately and municipalities being able to justify the expense of public fire protection.

All Canadians benefit from this system.

TIME FOR A REMINDER

Although the system works well, insurers are beginning to forget that they need to be diligent to keep this system working. If property owners can get protected rates without the municipality having to invest in a recognized level of fire protection service, then why would they?

More and more municipalities are asking the question, How can we reduce spending? Unfortunately, one of the first services considered for cuts is public fire protection.

Municipalities often see public fire protection as a cost centre with no return on investment. This is understandable as property insurers do not indicate to insureds what level of premium discount they might be receiving as a result of the level of public fire protection investment.

The Fire Underwriters Survey (FUS) continuously surveys communities across Canada, and over the past several decades, a few trends have emerged.

VOLUNTEERISM DOWN

Roughly 80% of fire departments in Canada are manned by volunteers. That means that when a building is on fire, there will be several extra minutes in total response time as firefighters need to travel from their homes or places of work to the fire hall before suiting up and responding to the fire scene with an engine.

In years past, before the digital age, participating as a volunteer on the local fire department was a fun way to be part of the local community. It seems, however, that people’s lives have become busier and volunteering on the local fire department is seen more as a second job than a way to be part of the community.

This is exacerbated by businesses that historically were very supportive of volunteer fire departments, but that in recent decades have pulled their support. In fact, more and more businesses are advising their employees that they are not allowed to leave while on shift.

This may be understandable since businesses are focused on producing their own financial results, which are unlikely to benefit from having employees called away in the middle of shifts, leaving their posts unmanned.

There are many factors that have resulted in the downward trend in volunteer firefighting, including location economics. Firefighters often do not live and work in the same town.

In Vancouver, for example, few firefighters can afford to live in the city, so they have homes in cities like Coquitlam, Maple Ridge or Surrey, which may result in their place of residence being farther away from the fire station.

An interesting side note is that many insurers assume large cities are 100% career fire forces, but this is not the case. More and more cities are looking to reduce their overhead by cutting fire department budgets and fire departments are turning to volunteer or paid on-call models in an effort to maintain some level of fire protection.

The biggest factor in reduced volunteerism seems to be apathy. More people are assuming that they do not need to contribute as someone else will.

When it comes to public fire protection, however, this can have very serious consequences. A lack of standards for training firefighters has been identified as a serious problem.

There are actually a number of standards for training firefighters, but they are expensive and time-consuming to implement. The result is that most communities do not implement them.

In fact, a recent study for British Columbia firefighters found it was not economically feasible to train firefighters to the minimum National Fire Protection Association Standard Level 1.

For volunteer fire departments, this is a big problem, and for the communities that they serve, there is a significant liability exposure in having emergency responders who are not certified Level 1 firefighters responding to very dangerous incidents on behalf of the community. This is beyond the serious risk to firefighters themselves.

APPARATUS AND EQUIPMENT

As a result of the economic belt-tightening of municipalities, more and more fire departments are being asked to do more with less. Municipal associations have lobbied FUS to change the apparatus life cycle requirements to allow communities to operate apparatus and be recognized for fire insurance grading regardless of the age of equipment (and whether or not that equipment is reasonably reliable).

This issue not only affects the apparatus, fire departments are also being asked to do without replacing personal protective equipment (PPE) and to share things like SCBA (self-contained breathing apparatus) breathing masks because of their expense.

EFFECT ON PUBLIC FIRE PROTECTION

These trends and others result in lower levels of public fire protection and fire prevention. Volunteers are far less likely to join an organization that is poorly equipped and does not provide minimum training or proper PPE.

In many cases, fire insurance grades are getting worse in communities served by volunteer fire departments.

That said, it is not all bad.

When fire insurance grades become worse, property insurance premiums go up. Typically this is the reminder that property owners need to either take additional steps to mitigate the risk (knowing a lower standard of protection exists), or to advocate locally for improvements in public protection.

How can the trend be corrected? The answer is easier than one might think.

Using the Canadian Fire Insurance Grading Index diligently will stop the downward trend in public fire protection. This is why the index was invented. When insurers diligently adjust premiums based on the fire insurance grades, the impact is immediate and financial.

Property owners who experience increased costs for property insurance as a result of poor levels of fire protection can apply pressure to their elected officials to improve policies for higher standards of fire protection. If communities respond by improving protection, this results in improved grades, and better access to lower insurance premiums.

The challenge today is that fire losses are down and other perils are a bigger concern now. Although true, it is important to remember why fire losses are down.

The underlying financial incentives created by the grading index have resulted in communities having the leverage they need to make proactive choices in mitigating fire risks through developing, implementing and enforcing building and fire codes, as well as by providing water supplies and fire departments for responses to fires.

Every month, there are examples of communities contacting FUS for assistance as their public fire protection is nearing the brink of extinction.

In one recent case, a fire hall had just two volunteer firefighters left on the roster, prompting the fire chief to notify FUS as the local council was refusing support. Once council members realized insurers would adjust premiums in the area if the station was no longer recognized, they immediately began a program to revitalize the response capacity.

If insurers did not adjust premiums based on fire insurance grades, communities would certainly pull funding for public fire protection.

The grading index continues to be improved to facilitate more accurate and efficient underwriting processes and the entire system was recently converted into an online, location searchable database that offers fire protection details, hydrant information and fire insurance grades.

The most important thing for the insurance community is to be diligent. The insurers of Canada created a model of incentives for public fire protection investment and standing behind the model is often the key for local fire departments to secure the support they need from their communities.