When enterprise risk managers develop organizational disaster response plans, catastrophes like tornados, hurricanes and earthquakes are usually top of mind. But, the possibility of a devastating fire cannot and should not be overlooked, as a fire loss entails nearly all the same elements as a natural disaster. In addition to causing significant damage to (and, potentially, the total loss of) a property and its contents, fires can bring manufacturing facilities, warehouses and storefronts to an operational standstill and put human safety and brand reputation at risk. With proper planning and strong partnerships, organizations can be as prepared as possible to weather a fire event, mitigate losses, and quickly and safely get back to business.
Understanding your policies and exposures
Insurance coverage is, of course, critically important when it comes to protecting an organization’s properties and assets. Knowing the compensable value of a fire loss can help a company determine whether to rebuild or repair a damaged facility or if other options align better with the organization’s current strategic direction.
Depending on the nature of the facility and what else is on site (vehicles, merchandise, etc.), a fire loss can trigger multiple policies, including auto, general liability, property, business interruption and others. Certain types of property can impact how claims are processed and how damaged items are evaluated for restoration or destruction. A variety of factors may affect coverage, such as the condition of the physical structure, whether the business owns and occupies the facility or is the tenant of a landlord, ownership of the goods contained within, and any opportunities for subrogation if a third party contributed to the fire loss.
Risk managers are responsible for knowing their business exposures on each property and which on-site contents are owned by the organization. They must also have ready access to current inventory data, as that may be required for contents claims in case of a damaging fire or other catastrophe. Risk managers should be reviewing and evaluating their organizational catastrophe/major loss plans, business continuity plans and insurance policies on a regular basis. It can be helpful to conduct periodic claim simulation exercises with a broker, carrier, underwriter or adjusting provider to see how policies would respond in various scenarios and to identify any gaps or unnecessary coverage; limits can then be modified accordingly.
Knowing your property
Along with facilities managers, risk managers must know the ins and outs of all the properties they’re responsible for protecting. A devastating fire can leave a property or structure nearly unrecognizable, so it’s important to have pre-loss documentation of its layout and features.
Fire safety practices should be strictly observed at all times to protect the welfare of everyone accessing the property.
- Is everything kept up to code?
- Are the electrical systems in good working order and well maintained?
- Is the sprinkler system up to date and inspected regularly?
- Are the fire exits clearly accessible, well indicated and appropriate for how the building is currently used?
- Are employees participating in regular fire drills and trained on where to go during an emergency evaluation?
These questions may seem elementary, but human lives and significant financial loss could be at stake in the event of a fire if they’re not all answered with an emphatic “yes.”
A less obvious fire preparedness tactic is understanding drainage across your properties. The efforts to combat a large-scale fire can produce many thousands, even millions, of gallons of water. Risk managers need to know where that water (and any other specialized firefighting materials) will go, what impact it might have on the surrounding environment, and any limits outlined in their insurance policies for environmental cleanup following a fire.
Forging the right relationships
When faced with a crisis, organizational stakeholders turn to their established relationships to help them weather the storm. For risk managers, those connections must begin internally and long before disaster strikes. The risk management function operates in a silo in many organizations; however, other departments should understand the role of risk management. Additionally, the risk management team should establish contacts in the human resources, facilities, legal, media/government relations and other departments likely to get involved in a catastrophe affecting employees and worksites. Putting in the effort to build an internal knowledge network and check in with them regularly will pay off in spades during and after a crisis.
External partnerships are essential, too. Long before you need them, it’s a good idea to vet and select the vendors with whom you want to work in case of a fire or other catastrophe. You can even designate those partners in your insurance policies, so they can be brought in to strategize on the loss earlier in the process. Further, a major fire may have a significant impact on the surrounding community — particularly if it results in lost jobs or decreased economic contribution to the region. Maintaining good relationships with facility neighbors, local officials and other key community stakeholders will be an invaluable asset in the event of a devastating fire.
Ideas from this blog were presented by Danny Miller and Jennifer Reno, global risk manager for QVC, on Tuesday, May 2, at RISKWORLD®, the 2023 RIMS conference and exhibition. We thank Reno for her contributions to the educational session and to this piece.