Fire is one of the major causes of insured losses in South Africa, and its impact is likely to amplify and accelerate as landlords face the aftermath of the Covid-19 lockdown and South Africa’s precarious and constrained economy.
It is a risk that is perpetuated in commercial properties where it is not uncommon to operate in the absence of regular automatic sprinkler system inspections. Commercial buildings are also often certified for a specific fire load or occupancy class, but may house occupants that utilise the space for a completely different purpose than what it was designed and certified for, which is why it’s crucial to confirm that the fixed fire protection installed in a building is fit for purpose based on the risk associated with the current occupancy. This risk is likely to amplify as landlords come under pressure to fill increasingly vacant buildings as the impact of Covid-19 makes itself felt in business closures.
Consider for example a building or portion thereof that was previously approved and suitably protected for office use, but now being leased out to a pop-up clothing retailer crammed with highly combustible material such as polystyrene packaging, and other synthetic materials including hydrocarbon-based plastics and fabric. There is also the possibility of an existing tenant changing the nature of their business which they were previously rated for – say from offices to retail or manufacturing – without informing the landlord of the changed risk profile.
“The lack of compliance to health and safety regulations could land both landlords and tenants in serious breach of regulation and facing a raft of legal liability if something goes wrong. Additionally, insurance cover could be compromised or entirely negated if the profile of the risk initially accepted by an insurer at inception of the policy is materially altered, without notice and updating the risk mitigation measures that may be required by the insurer – of which an automatic sprinkler system could be one such measure,” warns Craig Kent, Head of Risk Management at Aon South Africa.
“This is concerning when you consider that it is estimated that at least 50% of all sprinkler systems installed in South Africa in the previous 25 years have not been aligned specifically, or at all to recognised and accepted sprinkler protection codes. The number of sprinkler systems that remain uninspected, and thus not verified as fit for purpose, is believed to be in excess of 40%. If a fire breaks out and the sprinkler system is not operational, or fit for purpose, the potential for a catastrophic, complete loss is significantly higher, and the potential impact on surrounding third-party property and assets is significantly increased. Add in the potential for injury or loss of human life, and subsequent claims of negligence and liability becomes staggering,” says Craig.
From a legislative perspective, automatic sprinkler systems are required to be installed under certain circumstances contained in SANS 10400 in addition to being designed, installed and maintained in accordance with SANS 10287 – Automatic Sprinkler Systems for Fire Fighting Purposes.
“The journey to fire risk resilience starts by improving the fire defence risk profile of buildings, which will reduce the frequency and severity of fire losses and the potential thereof. Undertaking a thorough risk assessment and gap analysis is key, and especially a proactive approach that takes into account some of the glaring gaps in terms of the regulations versus inspection and enforcement against approved standards by an independent and mandated compliance body,” Craig adds.
The industry still needs to set and agree upon a sprinkler inspection baseline to avoid inconsistency of reporting, and gaps in programmes, whether aligned to the Automatic Sprinkler Inspection Bureau [ASIB] or any other mandated, independent body. From an insurance industry perspective, there is a specific need to bring into the inspection framework the numerous automatic sprinkler systems that for no good reason are not inspected, alternatively to reinstate the inspection regime where this has fallen by the wayside.
Currently, from a legislative perspective, SABS 10287 [published in the year 2000] requires an inspection every 13 weeks by an external party. In terms of the ASIB 10th to 12th Edition Rules as well as SANS 10287: 2015, a biannual inspection is required by a suitably qualified person or company. The 6-monthly inspection criteria currently prevail.
“In this regard, Aon’s risk consulting unit does extensive work with clients in educating building owners and occupants on the importance of having a fully compliant inspection scorecard or report of the building’s automatic sprinkler system for risk management and insurance purposes, as well as engaging with insurers to continually improve a client’s fire defence risk profile. The insurance industry in conjunction with its many risk consulting divisions have undertaken automatic sprinkler system inspections for many decades. These are generally undertaken to comply with annual reporting requirements stipulated by underwriters to verify a client’s risk profile and support an insurer’s terms of insurance,” explains Craig.
From a risk management perspective, there are two distinct trains of thought.
- Legislation is concerned primarily with the safety of individuals within a building. When you look at health and safety regulations, the law is clear-cut on what is expected from a property owner or even an employer on safety regulations and building codes, specifically around fire risk. Legislation is also concerned with containing a fire and preventing it from spreading.
In these instances, there is an onus on the property owner and the tenant to comply with legislative requirements, which opens either party up to liability risks in the absence of adequate precautions. A civil claim can easily become a criminal claim in the absence of a fully compliant automatic sprinkler system to substantiate good faith.
- The insurance industry is concerned with the actual integrity of the building and its contents (the assets), urging clients to stick to good fire guidelines and to have an automatic sprinkler system that is built for purpose, thoroughly addressing the fire risk of items housed within the building. Cover is once again dependent on the existence of a fully compliant automatic sprinkler system and it’s here where a comprehensive fire risk mitigation programme and qualified advice from an experienced risk consulting and broking provider will prove invaluable.
“These two viewpoints are mutually inclusive with both voicing specific aspects of fire-related risk that need to be addressed. Most sprinkler systems are designed to control the development of a fire thereby providing the occupants of the building with enough time to get out of harm’s way, until further assistance can arrive,” explains Craig.
From a landlord and tenant perspective, it is critical that fire risk forms part of the discussion when a lease agreement is negotiated with a tenant.
“In some cases, an occupancy certificate is issued based on an empty building, which means the risk remains unassessed from an occupant perspective. For example, a building that is utilised as office space has a vastly different fire risk footprint than a paint manufacturer or clothing retailer would have. If an incident occurs, all parties involved will revert to the original agreement between the landlord and occupant to establish where the liability lies, which is why it’s crucial to thoroughly interrogate and understand these terms and conditions,” says Craig.
“It is also crucial for clients and landlords to play open cards with their insurers as to what the building will be utilised for and what will be housed within it. This is fundamental to the risk profile of the parties involved and the estimated maximum loss ratio expected on the building should a fire occur,” he adds.
“Only when all automatic sprinkler systems nationally are covered by inspection regime, and the installation deficiencies rectified, will the risk profile of South African industry be improved to the benefit of all concerned. Until then we advise clients to exercise meticulous attention to risk management and mitigation measures in line with all available regulation and best practice,” concludes Craig.