Business Impacted by Small Portion of Fires, Yet Face 30% of Losses


Data available from the United States Fire Administration (USFA) reveals some startling facts about where losses are more likely occur after a fire, as well as a few encouraging trends related to fires.

The positive side of this story relates to overall decreases in four key areas: number of fires, deaths, injuries and financial losses. Each category saw a remarkable decrease from 2005 to 2014, with the total number of fires dropping over 22% during that period. Deaths related to fires fell around 12%, while fire-related injuries dropped nearly 8%.

Somewhat predictably, monetary losses associated with fires were closely correlated with the number of fires. But although the dollar figure for fire losses dropped 21% between 2005 and 2014, there was a significant increase in 2007 and 2008, which consequently coincided with the housing market crash.

What can we infer from this? According to columnist Elliot Blair Smith with MarketWatch, falling property values are directly correlated with an increase in arson. Were property owners purposefully burning their own assets in a mass of insurance fraud? During that same period, USFA shows that property fires continued to decline. The data tells two opposing stories, but it is certainly plausible that those who did have fires reported significantly higher losses during that time.

Regardless of whether insurance fraud may or may not have happened during the housing crisis, it is clear that businesses and homeowners place significant value in property insurance. Business owners, in particular, face a huge portion of losses from fires: 29.9%, in fact, despite making up only 8.4% of all fires. For business owners, mitigation is usually meted out through commercial property insurance, with fire coverage a relatively standard named risk.

Interestingly, according to the USFA and FEMA, the number one cause for non-residential building fires is associated with cooking. This is likely due to the number of fires that occur at restaurants. Indeed, open flames are a leading cause of these fires, with the rather generic “Other Unintentional, Careless” title taking the number two slot. However, the second position does not mean that “Other Unintentional, Careless” is insignificant.

USFA research also shows that fires associated with “Other Unintentional, Careless” are on upward trend, with fine dollar losses spiking during the 2007-2008 housing crisis, as well as a noticeable spike in 2013. Most other fire causes also increased in fine dollar losses during the 2007-2008 period, including “Intentional” fires, “Heating” fires, and “Cooking” fires.

One of the larger reasons that commercial properties tend to absorb so many losses is due to businesses operating equipment consistently throughout the workday. As with any insurance purchase, a larger policy comes with increased costs. However, given the associated risks, particularly with fluctuating property values, it’s likely in most property owners’ best interest to purchase a recommended amount of insurance and have their property values regularly re-assessed.