1 how current issues facing fire departments affect underwriting and property risk how current...

1 How Current Issues Facing Fire Departments Affect Underwriting and Property Risk

How Current Issues Facing Fire Departments Affect Underwriting and Property RiskSITA ConferenceOctober 5, 2009


At Risk: Effective Fire Protection – What You Need to Know

• Our nation’s fire departments are facing economic, socioeconomic, environmental challenges

• How the ISO Fire Suppression Rating Schedule (FSRS) measures the changes

• What fire chiefs say

• What’s the scope of the challenge?

• What if protection worsens?

• How some communities are overcoming the odds and improving their PPC rating


At Risk: Key Questions to Ask

• How is the fire department dispatched?

• What department responds?

• What equipment is sent?

• How far away are the actual responders?

• How well is the department equipped, staffed, and trained?

• Is there nearby access to water of adequate pressure and volume to fight the fire?

4How Current Issues Facing Fire Departments Affect Underwriting and Property Risk

The PPC Evaluation Process – Four Key Parts


US ISO Public Protection Classifications


ISO Public Protection Classification (PPC) Program

• PPC helps measure effectiveness offire protection, advisory to insurersand communities

• Only the insurance industry evaluates fire protection

• Applied nationwide, incorporates consensus national standards

• Verified, validated, robust data-collection process with expert analysis

• Class 1-10


ISO PPC Program

• PPC used in marketing, underwriting, and pricing homeowners and commercial lines

• Price of insurance generally lower with better protection, thus lower losses; price higher in poorer protected areas with higher losses

• Widely used and accepted by insurers

• High percentage of local officials rely on PPCto assist with protection decisions


FSRS Draft Concept 2009

• Comprehensive internal review under way to update FSRS for PPC with active involvement of key stakeholders

• Highlights as follows:– More reference to national standards —NFPA

and AWWA

– More recognition of automatic fire sprinklers

– More reliance on technology-based solutions (eg.GIS)

– More emphasis on fire training activities

– New reference to national standard safety requirements

– New reference to community risk reduction


Validating the Impact

• Statistical study performed on actual insured fire losses

• Relates attributes of Fire Suppression Rating Schedule (FSRS) to reduced fire claim severity

• Better community capabilities resultsin lower claim costs


Overview of Statistical Study

• Data– Detailed exposure and loss data from multiple insurers

• 25 million earned house years from 2000 to 2005

– Analysis of more than 70,000 Homeowners Fire Claims• Demonstrates top-level effects of fire protection ratings

– FSRS information available for 25,000 of these claims• Used to identify the most significant attributes of these

detailed ratings

• Analysis of Fire Claim Severity Reduction– Severity is adjusted to control for the effects of other

variables such as amount of insurance, territory, deductible and others


Top-Level Validation

• Better rated Protection Classes demonstrate lower Fire Severity

PPC vs. F ire Severity

$19,000

$23,000

$27,000

$31,000

$35,000

1-2 3-5 6-8 8B-10PPC

Adj Severity

-

10,000

20,000

30,000

40,000Claim Count

Claim Count Adjusted Severity

20How Current Issues Facing Fire Departments Affect Underwriting and Property Risk

Fire Station Distance is relevant at larger distances

• After controlling for PPC effect, fire severity increasesat 3+ miles from fire station

• Distance to Fire Station does not significantly affectfire severity below 3 miles

Fire Station Distance vs. Severity

$19,000

$23,000

$27,000

$31,000

$35,000

<=0.5 <=0.8 <=1.2 <=1.6 <=2.0 <=2.4 <=2.8 <=3.6 <=5.0 > 5.0Distance

Adj Sev erity

0

3,000

6,000

9,000

12,000

15,000

Claim count

Claim Count Adjusted Severity

After adjusting for Protection ClassSeverity effect is flat where most exposures are


At Risk: Strained Resources

• National League of Cities Survey– 84% of cities surveyed facing unprecedented

fiscal woes – 91% stated making budget cuts; staff

cuts/freezes– 88% officials report less able to meet needs– 62% delaying infrastructure investment– “Lag effect” may extend issues into 2010/11

• State revenues down 17% compared to 2008

– Steepest decline since the ’60’s


At Risk: Resources

• Emergency responders not spared in many cases – delayed maintenance and replacements, layoffs, furloughs, closed stations

• Federal grant programs exist, but…– Require matching funds which are drying up– Loss of grant monies having “undeniable impact”

• ISO actively engaged in evaluation of issues


USFA – Fire Service Needs

• Number of volunteer firefighters continues to decrease

• Roughly 17,300 fire stations are estimated to be at least40 years old

• An estimated 128,000 firefighters lack formal structural firefighting training

• About 38 percent of fire department personnel involved in HAZMAT responses lack formal training

• Firefighters still do not have enough self-contained breathing apparatus (SCBAs) and many departments are relying on air units at least 10 years old

• About 39,000 of those surveyed do not have protective clothing


Fireman’s Fund Survey – Economic Crisis

• Top three needs of Fire Departments:– Lack of budget– Old or outdated equipment– Staffing, recruiting, retaining members

• More than half said fund raising/grant writinghad to increase

• 55% stated if economic issues continue for another 12 months, will result in negative effects on abilityto serve

• 57% of volunteer departments losing membersto look for jobs


At Risk: Less Resources

• Economic hardship trickle-down effect: the tail of the problem may yet lie ahead

– Recession exacerbating existing problems, but not yet fully realized

– No growth or loss in tax revenues

– Median house sale in Detroit - $7,100 (7/09)

• Effects are cross-cutting – small towns up to and including large cities

• State cuts in aid to local municipalities


At Risk: Strained Resources

Meanwhile…

• Fire departments respond to fires once every22 seconds; structure fire every 61 seconds

• HO fire losses account for 58% of total insuredfire losses

• CMP and CF each accounted for 21 % of total insured fire losses

• Across U.S., 7M acres burned annually, 2x ’90’s avg. • Suspicious car fires up 27% in one year (2008-9)• Arsonists destroyed nearly $900 million in insured

property and killed 295 civilians nationwide in 2007


Fire Chiefs Opinion Poll

Independent Poll highlights

• Fire departments faced with challenges in staffing, recruiting, and training of firefighters and access to sufficient water supplies

• Risk of falling below national standards

• Adverse effect on efforts to save lives and reduce property loss


Issue: Responders Needing Help


Issue: Maintaining Adequate Staffing(Volunteer/Combination Fire Departments)


Issue: Adequate Water for Firefighting


Issue: When Fire ProtectionLevels Decline

• ISO aggressively monitors changesin protection levels

• Number of communities with worsened classes (“retrogressions”) pending has increased almost 20% in one year

• Communities provide outline of plan to retain their classification -- then implement improvements, if possible

• Lacking improvement, worse class applies going forward


Issue: When Fire Protection Levels Decline

Examples of local issues that result in potential worsening of Protection Class:

– Decline in number of fire personnel responding

– Inadequate training of fire personnel

– Insufficient number of fire stations

– Inadequate number and type of fire apparatus

– Inadequate water supply – hydrant flows and/or condition


Issue: Needing Assistance

• Community-specific information and what-if assistance provided by ISO to local officials (at no charge)

• Countrywide efforts to improve sharing of resources

• Availability of federal/state grants

• State planning agency assistance

• Mergers and consolidations of fire departments

• Temporary response reductions --”brown outs”


Opportunity: Improved Protection

• Springdale, AR – A secondary means of dispatch of firefighters was added to the communications center, and the primary dispatch circuit was upgraded to fully meet the intent of NFPA 1221 for Monitoring for Integrity; another elevating platform ladder company was added to the department in-service apparatus; on-duty staffing increased; the department partnered with neighboring departments in sharing resources for a burn building and a drill tower.Result: Improved PPC from Class 3 to Class 2.

• Orlando, FL – Two new staffed fire stations put into service; on-duty staffing increased overall; a ladder company was relocated for improved coverage; enhanced hydrant -condition inspection program.Result: Improved PPC from Class 2 to Class 1.



• Hogan Township, IN – The community, which previously had no municipal piped water system, installed water mains and hydrants; training program enhanced; added engine company equipment.Result: Improved PPC from Class 10 to Class 7/9.

• Roscommon Township, MI – Improved water- hauling capability through newer tender/tanker shuttle; increased engine company pump capacity; engine company pump testing program; enhanced training.Result: Improved PPC from Class 7/10 to Class 6/10.

• Murfreesboro, TN – New emergency communications center put into service; new staffed and equipped fire stations added with engine and ladder/service companies; water system improved with additional storage capacity.Result: Improved PPC from Class 3/9 to Class 2.



• Hopedale, Harrison Co., OH – Completion of the water line project. Added 22 new hydrants and all the water lines are in-service. They also upgraded the 6" lines to 8" and most of the4" lines to 6”.Result: Maintained Class 6, 6/9, and 9/10.

• New Carlisle, Clark Co., OH – Enhanced fire communications, placed a new water plant in-service, and purchased a new Quint.Result: Maintained Class 4.

• West Leipsic, OH – Increased in number of operators, increased engine company equipment, increased pump capacity, increased personnel responding, and increased training.Result: Improved PPC from 6 to 5.


The Road Ahead

• Communities and their fire departments are faced with critical challenges

• The full effect of the problem yet to be realized

• Many communities are forced to make difficult decisions regarding available resources

• State of fire protection is a dynamic environment – with better and worse outcomes

• Insurance industry -- through PPC -- is engaged in monitoring changes in protection levels across the country

1 how current issues facing fire departments affect underwriting and property risk how current...

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