Spreading the risk

Do retailers worry about the building's structure when they move in, or the fixtures and fittings? RPD hears how looking beneath the surface can save on costly insurance premiums.  

Builders of speculative developments face trouble finding occupants if they aren’t properly aware of fire requirements, says risk advisor Marsh.

Many new tenants of commercial buildings in the UK move into buildings that have been built speculatively by a developer, and are unaware of the potential insurance premiums until it is too late.

Risk and insurance services firm Marsh has found that the UK insurance industry is increasingly nervous about fire risk to many types of buildings following some high-profile disasters.

Marsh senior consultant Neil Wilson explains: “Many metal-clad buildings, such as warehouses or superstores, are built using insulation materials that can pose a significant fire risk. Insurers may require expensive and complicated modifications before providing cover at very high premiums, and some may simply decline to insure the building at all.

“This places the tenant in an extremely difficult position, adding significantly to operating costs, and damaging profits, but unfortunately for them, pleading ignorance is no defence. Developers are not immune either, as spec built properties lay idle because many potential future tenants are advised of the future risks and move on to find premises that have little to no risk.”

He says building operators, investors and developers should always seek advice from insurance advisors at the earliest stage before signing up for a building lease or purchase because they need to avoid hidden risks to both their business and the building in which they conduct it.

The insurance industry has been hit by a series of “total loss” fire incidents in recent years and is more focused on tightly controlling exposure to risk. “Without clear and incontrovertible evidence regarding the combustibility risk to the building envelope, insurance cover – if available at all – is extended only at significantly increased premiums,” says Wilson.

Some composite panels, for example, have LPS1181 fire certification which remains valid only for as long as the insulation remains protected from possible fire ingress. The moment such panels are penetrated or damaged, the certification becomes null and void until the panel is either repaired or, more likely, replaced. Where such panels are cut to allow penetrations for pipes and cables, they must be properly sleeved and protected to exacting specifications to retain their fire rating.

“In practice,” says Wilson, “this just doesn’t happen, leaving the unsuspecting building operator in breach of strict policy conditions and warranties that invalidate policy cover should a disaster happen.

“By specifying the right insulant while the building is still on the drawing board, companies can save hundreds of thousands, or even millions, on insuring their properties.”

An excellent example is the case of a leading DIY chain, whose superstore in Scotland experienced a serious fire just weeks before its scheduled opening date. Because the building used non-combustible mineral fibre insulation, the fire did not spread and the building was opened on time thanks to relatively manageable damage and minimal loss of stock, its structural integrity having remained intact.

Further investigation proved that the fire was indeed not insignificant – roofing panels that had been at the centre of the blaze were examined and their paintwork was seen to have crazed and cracked, indicating that they had been exposed to a direct and extreme heat. The rooflights had warped and blackened, again confirming the intensity of the heat, and yet the damage had remained localised where, in a different type of building, it might have spread.

In consultations with technical engineers from the building’s roofing and cladding manufacturer, CA Group, the insurers focused on the question of what would have happened if the same fire had occurred in the same building, if that building had been constructed of different materials.

The conclusion was that providing only mineral fibre was used in the envelope a £20,000 reduction in the annual fire insurance premium would be made. Over a 20-year building life the company saved at least £400,000 and with over 300 buildings in operation a total of £120m is available.

Brian Watson, commercial director at CA, explains further: “If a building has foam insulation, insurers may insist on certain risk management measures from the occupier before they will provide cover. If the building features sources of heat such as industrial boilers, or store perceived flammable substances they often must install expensive sprinkler systems. Furthermore if the building is used to house flammable materials such as paper, insurers have been known to insist that there is no storage within five metres of the walls – a costly waste of floor space. And the simple way around these exclusions is to insist on a building that is made of completely noncombustible components in the conceptual design.

“As a manufacturer, we will only supply materials that are proven to be noncombustible, which means fibre, not foam. This is the way the building industry should be going, for obvious logical reasons.”

Property and Construction lawyer Watson Burton agrees that designers and developers must pay more attention to material selection. According to senior partner Robert Langley, “The new Fire Safety Order, in force since 1 October 2006, is a move away from the old tickbox mentality. The new risk assessment obligation means looking critically at the dangers of fire, and the vulnerability of buildings. Getting the right materials must be a vital part of that process.

“The standard of care required of a designer in selecting a specification for construction or materials is high. Clients may well have a legitimate grievance if the specification does not deal adequately with combustion risks. On the other hand, many
clients are driven by immediate capital cost and intend to sell the building to a third party user. They therefore have less interest in running costs – but that is an increasing concern of property customers. The property marketplace is becoming increasingly sophisticated.

“This all means that a sensible architect will at least discuss issues of specification, standards and costs with clients before settling the final specification. He will also record the fact of those discussions and be able to prove that he has discharged his duty of care towards the client as a conscientious adviser.

“The pre-specification discussion must cover enough ground to enable the client to take an informed decision on costs and benefits. The dialogue should cover key areas, including combustion, functionality, future use and sustainability. Dialogue at the specification stage is critical both to the harmonious relationship between the designer and the client, and to the long-term commercial success of the project.”

Marsh therefore advocates better communication between the insurance industry and commercial property builders. “It is starting to happen,” Wilson concludes. “One high profile case in the South West saw the builder seek the advice of an insurance risk advisor in the south of England."