SYNOPSIS
Engineers play various important roles from cradle to grave of a building in managing the risks along this long journey. These risks are normally transferred to insurance companies by way of a premium which is determined from the insurer’s underwriting process. There are many classes of insurance (explained briefly in layman terms) which are specifically applicable to building and they are:
- Professional indemnity – PI, covers for the negligence of the professional engineers in their course of their design of the building.
- Construction All Risk – CAR, covers for the accidental damage including fire during the construction of the building until handing over to the owner.
- Erection All Risk – EAR, covers specifically for the accidental damage arising from erecting an equipment/production lines, etc in an existing building until handing over to the owner.
- Fire Insurance – Fire, covers for fire & lightning and named perils damage which is a yearly renewal policy, this is recommended to take effect immediately after the end of the CAR policy to ensure there is no gap of coverage. Ideally should be the same insurer to avoid disputes between two insurers when a claim arises which could fall on either CAR or Fire
- Professional indemnity – PI, covers for the negligence of the engineers in managing a building
Note: Insurance is a specialized field which is not intended to be covered in this article.
The main stakeholders of a building are the Property Owner, Fire Rescue Department Malaysia (FRDM), Engineers, Architects, Insurers and the Public at large. Each of them plays a role to ensure the building is safe hence benefitting the society at large and country.
The major risk of a building in particular high rise is fire which would generate smoke detrimental to the building occupants and there could be thousands inside the building to be evacuated. In this respect, the application of Fire Engineering is critical to reduce the risk level and mitigate losses in the event of a fire. The various stakeholders in many aspects contributes to the said objectives however this article covers very specifically on the Fire Engineering, an essential of insurance coverage.
Application of Fire Engineering
The Uniform Building By-laws (UBBL) 1984 contains a few specific chapters on “Fire Requirements” and stipulated the minimum fire protection to ensure life safety and property safety. The Authority Having Jurisdiction (AHJ) in the implementation of the Fire Requirements is the Fire Rescue Department of Malaysia (FRDM) ensures these protections are in place before the building plan is approved. The Government effort to promote transparency, constant improvement, innovation and smart partnership, the various professional bodies including the Institution of Engineers, Malaysia (IEM) and with FRDM released “Guide to Fire Protection in Malaysia” latest is the 2nd edition as a source of reference to all those who are involved in Fire Safety Engineering and fire protection industry.
Amongst the various stakeholders on the property safety, the stakeholder having the major stake is the insurer of the building. In Malaysia, all the general insurers gathered together to form an association known as Persatuan Insuran Am Malaysia (PIAM) to be a single body hence would address all issues pertaining to general insurances practices. The supervising body over PIAM is Bank Negara Malaysia (BNM) hence approval required by BNM prior to changes of general practices and rates.
Insurer in accepting the risk being transferred by the building owner would have to pay claims in the event of a fire incident in the insured building. Understanding the basic principles of insurance would allow engineers to appreciate the role of insurer, basically there are 2 namely:
- Contribution of premium from the many to a pool to pay for the losses of a few unfortunates
- Contribution amount should depend on the risk level each individual brings to the pool.
Insurer basically manages this pool and to make a profit from the service rendered under the supervision of BNM, however the insured must maintain only a few unfortunates most of the time otherwise it would no longer be a viable business. In order to achieve only a few unfortunates, underwriting process carried out before accepting a risk . There are four (4) basic concepts in Property Underwriting:
- C – Construction type
- O – Occupancy of the insured
- P – Protection systems installed
- E – Exposure from the surroundings
Some insurers provide a rating tool which allocates a weightage on each of the 4 elements and would accepts if the final score reaches a predefined target. This would quicken the evaluation process of risks submitted to the insurer.
In Malaysia, fire insurance is under tariff hence the rate is predetermined spelt out in the PIAM Revised Fire Tariff (RFT) and all PIAM members must offer the same rate with the exception that the total sum insured of industrial risk exceeding RM300 million. In both cases, Fire Engineering plays a major role in underwriting the risk which will determine the final rate of the risk.
Construction Type
The material used in the construction of the building has a significant impact on the base rate. The material is not merely evaluated based on the Flame Spread Index, it must also be evaluated on the Fire Rating resistance. In this respect, concrete and brick walls qualified as the best grade (known as C1A construction) because it has Flame Spread Index (FSI) of 0 and Fire Rating (FR) of at least 1 hour (greater if the wall is thicker). Whilst metal cladding (typically installed in factories) has FSI of 0, it failed to provide the FR of 1 hour hence qualified as the next best grade (known as C1B). Engineers who intend to achieve the C1A construction must ensure that both the criteria of FSI and FR are met. If it is inexpensive, brick walls should replace metal clad walls.
Occupancy of the insured
The second principle of insurance stated that the Contribution amount should depend on the risk level each individual brings to the pool. In practice, the rate charged to the building owner commensurate with the fire risk of its occupancy.
Example, Office risk of C1A construction has a basic rate of 0.055% whilst Bakery risk of the same construction class has a basic rate of 0.197% which is 3.6 times higher.
From the Fire Engineering perspective, there is a correlation when this is checked against the occupancy specified in the MS 1910 Fixed Fire Fighting Systems – Automatic Sprinkler Systems – Design, Installation and Maintenance, Annex A which shows category of the specific occupancy and the Ordinary Hazard Group (OH1, OH2, OH3, OH4).
For example, Office occupancy is classified as Light hazard whilst Food & Beverage – Bakeries is deemed as Ordinary Hazard Group 2 (OH2), in some way it is deemed to be 3 times more hazardous. This relates to 3.6 times higher in the rate.
Protection systems installed
Insurer who underwrites the risk depends on the effectiveness of the protection system to mitigate fire losses. In this respect, the Engineers play an important role to ensure that the protection system installed commensurate with the risk and have been designed to local or international standards. FRDM role of checking and to provide the final approval of all Fire Fighting drawings directly ensures that Engineers are prudent in their design. Whilst both played an important role in the Protection Systems Installed in a building, PIAM provides further incentives by way of discount listed out in the RFT Section 9 – Fire Extinguishing Appliances. Building owner must comply with the conditions listed (refer to RFT Sect 9 for the details) for each of the Protection System in order to qualify for the discounts.
Summary of Discounts listed in the RFT Sect 9 – Fire Extinguishing Appliances
| Fire Protection System | Discount over the base rate (%) |
|---|---|
| Internal Appliances - Portable Fire Extinguishers - Hose Reels - Internal Hydrants - Dry Risers - Wet Risers - Automatic Fire Alarm | 2.5 5.0 5.0 2.5 7.5 3.0 Total max allowed 15% |
| External Appliances - External Hydrants - Mobile Power driven pumps | 7.5 or 10.0 or 12.5 7.5 Total max allowed 15% |
| Sprinklers - Owner maintained - Fulfill all conditions | 12.5 40.0 whichever discount applicable |
| Total Available Discounts | 70% |
The Fire Insurance policy would list out the discounts granted to the building owner and the insurer in turn imposed the warranty that goes with each of the discount. The warranty clauses specifically list out the responsibilities of the building owner generally is maintenance centre hence records of maintenance of the fire protection systems must be kept updated. Failing to comply with the warranty clauses may render the policy void because the owner failed to fulfill the obligations for the discounts granted by the insurer.
Exposure from the surroundings
The exposures where Engineers may play a role to mitigate the losses are as follows:
| Exposures | Mitigating measures |
|---|---|
| Flood due to low lying | Install flood gate, raised the level of the building |
| Landslide | Erect retaining wall, strengthen the slopes, effective drainage to divert water away from the slopes |
| Storm and tempest | Strengthen the roof structure to withstand the wind load in the area (if it is a known windy zone) |
| Neighbours, left, right and back | If the occupancy of the neighbor is known to be hazardous, erect brick wall of sufficient height to prevent the radiant heat. The walls facing the neighbor should be fire rated for at least one hour. |
Conclusion
There is a direct relationship between Fire Engineering and Insurance coverage of building. Engineers are given the task to apply and implement Fire Engineering concept in their design in all the fire protection system which is expected from the insurer even though approved of the design comes from FRDM. Insurer would send their Risk Surveyor to inspect the installed fire protection systems to ensure that the systems are in working conditions. The main reason is because the insurer wants to safeguard their interest as a major stakeholder to prevent major fire losses. Only through this way the principle of insurance could continue the many to provide for the few unfortunates.