Can your business rise from the ashes?

Fire risks are once again in the spotlight as a fire gutted an East Rand retail park at the end of July.  What started out as a seemingly small spiral of smoke coming out of an upmarket furniture retailer store in the early morning, turned into an all-out blaze that in a matter of minutes gutted six stores and razed the building, stock and contents to the ground despite speedy and comprehensive fire and emergency services efforts.

According to Clayton Ellary, JHB Commercial Branch Manager at Aon South Africa, fire is a grossly underrated risk, particularly in South Africa.  “There are many statutory requirements and codes of practice in place for fire protection that can potentially leave business stakeholders in severe financial crisis in addition to possible legal implications if not adhered to. The costs arising out of the potential loss of life, assets, stock and loss of profits and income due to business interruption can amount to millions of Rands in damages and liability claims.  Despite the risk to business continuity, financial viability and brand reputation, many businesses remain unaware of the devastating domino effect that a fire poses to business continuity,” says Clayton.

“From a retail perspective, the building risk usually lies with the owner of the property or centre while the tenant is responsible for the risk and safety of all the contents such as stock, shopfitting, display cabinets, completed stock for delivery, electronic equipment and so on. It is critical for tenants and landlords to double check their contracts or lease agreements to confirm fire risk liabilities as well as ensure that it is comprehensively addressed in lease negotiations,” he says. 

A comprehensive fire prevention strategy linked to an insurance program that fully addresses the needs of a business is critical.  “A clear description of a business and its operational environment is central to the drafting of a well-conceived insurance programme as the type of materials that are kept on the premises greatly affect the associated fire risks.  A comprehensive fire risk assessment will greatly aid in identifying fire hazards and reduce the risk, in addition to determining what physical precautions and management processes should be in place.  It’s also very important to have an accurate assessment of the replacement costs of buildings, contents, vehicles, IT, stock and other assets, particularly in the event of a catastrophic loss,” says Clayton.

The Business Interruption (BI) aspects of a fire need careful consideration.  It is crucial to ask the right questions such as how long it will take to get the business up and fully operational if the building burns to the ground?  How does the business cover staff salaries and overhead costs while the business is not generating an income?  How does a business replace inventory, stock and completed orders that were damaged or destroyed in a fire? What associated costs will be incurred for keeping, maintaining and recovering market share after a catastrophic event? In this particular fire, it is unlikely that normal operations will be restored before the peak shopping season in November and December, which is a further blow to the bottom line of any retailer.

“With the assistance of professional partners, Aon assists clients with practical knowledge of building codes, fire codes as promoted by various specialist bodies, as well as knowledge of construction materials, manufacturing processes and storage practices and the relevant hazards involved therein.  By linking this to an aligned insurance program that covers virtually all the what if scenarios of not only the physical damage but the knock-on implications for business continuity, clients get to experience the real value of a comprehensive fire risk analysis with an experienced broker by their side.  When it comes to fire risk and business interruption, there is simply no lee-way to buy insurance cover without the guidance and analysis provided by an experienced broker who can interrogate the terms of the policy and how these will respond in actual scenarios that are unique to the client’s circumstances,” advises Clayton. 

It is of great importance to thoroughly interrogate the terms of business insurance covers, especially when it comes to fire risk.  “Ensure that the premises are covered for the replacement cost of the building and that the contents and stock are stipulated and valuated on an annual basis.  If the business makes use of specialised machinery, consider the cost of having to replace these items and the time delays if these items are imported, not to mention any import duty, taxes and fluctuating exchange rates.  Also, consider hidden costs such as the demolition of the building, removal of rubble, engineering costs and the prospect of having to complete a geological report before any reconstruction work can commence,” he says.

An experienced broker’s advice matched to a fire risk engineering expert is invaluable when it comes to having the right insurance covers in place to cover both assets and business interruption,” concludes Clayton.