05 December 2017: With water restrictions for City of Cape Town currently at level five, many businesses in the region are now at risk of having their insurance claims denied in the event of fire damage.
This is according to Annelie Smith, Corporate Executive at RBS (Risk Benefit Solutions Pty Ltd), an authorised financial services provider who explains that current water restrictions are making adequate fire risk management increasingly difficult for companies.
The City of Cape Town implemented level 5 water restrictions in September 2017, which effectively allows residents only 87 litres of municipal water per person per day. Businesses are expected to reduce their monthly water consumption by 20% compared to last year, and the city has reduced water pressure in many areas as a means of further cutting down on water consumption.
“This reduction in water pressure is now one of the biggest problems for businesses with emergency sprinkler systems, since the pressure is too low to allow many of these systems to operate. If a company’s business insurance policy outlines that the property must have a working sprinkler system, the insurer has the right to repudiate a fire claim if the sprinklers did not activate at the time of the fire.”
Smith adds that many of Cape Town’s older commercial properties do have water reservoirs to supply water in the event of a fire. “However, the current water restrictions affect these properties as well, since they cannot refill these reservoirs at the moment, and a number of businesses actually use the water in these reservoirs for other functions as well.”
According to Smith, fire risks will only increase as the drought continues. Adding to the water problem is of course the fact that fire risks are much higher in the summer months.
“Insurers are also discussing the additional risks that the drought in the region is causing, and they are trying to find ways to better manage possible claims. We have already seen recent cases of insurers increasing some Cape Town based businesses’ premiums by as much as 25%.”
She comments that more insurers may choose to increase premiums related to fire risks over the coming months. “If this continues, we may well see affected businesses reach a point where they simply cannot afford fire risk cover at all. As a policyholder, you will have to speak to your broker to make sure that your policy actually does cover loss as a result of a fire if the sprinkler system did not activate due to the drought, the specific conditions that the policy has, and that the insurer has not added any exclusions that could jeopardise your ability to claim for fire damage.”
Smith stresses that businesses will need to step up their fire risk management considerably. “Companies have to relook all of their existing risk management procedures and also add a few more. One measure that we can recommend, especially in the absence of an optimally functioning sprinkler system, is to increase on site fire marshals or security personnel. Many businesses hire additional fire marshals and security services on a 24/7 basis to patrol high risk areas of the business and the property. Businesses could also increase the number of portable fire extinguishers and firehose reels on site, to enable the fire marshals or security to deal with small fires immediately, and contain the damage as soon as possible.”
Making sure that the relevant documentation is up to date, is also vital. “For example, if there are any welding or similar “hot works” taking place on the property, you have to make sure that you assessed the risk and are taking due care via a “hot works permit system”, which will ensure that buildings do not burn down as a result of internal work done by the company or contractors on site. A good example to look at is the complete destruction of the Makro outlet in Strubens Valley, Roodepoort in 2004. The cause of the fire was traced back to a welding machine that was being operated without the required risk mitigation measures in place.”
Businesses need to stay up to date with drought related issues and its impact on their operations, she says. “Most importantly, businesses need to involve their broker partners at all levels of the business, to ensure that they have the best possible chance of survival after a major loss,” Smith concludes.