Insurers face record fire claims

The December edition of Insurance Daily reported figures from the Association of British Insurers (ABI) which show that the cost of fire damage in the UK has risen to record levels.

During the first half of 2009, insurers paid out £639 million, or £3.6 million a day for damage caused by fires.  The figure is at its highest ever for a comparable period and follows on the record high £1.3 billion paid out in UK fire losses for 2008. 

The ABI says that insurers have faced a ‘spike’ in property fire damage claims and that customers are using arson to raise cash to ease their money worries during the financial crisis. They say that there has been a ‘suspicious’ jump of more than a fifth in fire payments over the past two years, including a sharp rise in £500,000 plus claims from commercial building fires. Commercial fire claims among ABI members have risen more than 20% to £444m over two years.

In a report entitled “Tackling Fire: A Call for Action” the ABI points out that arson, accounts for half of all commercial fires.  Socially deprived areas and schools are especially vulnerable, with 20 schools per week currently suffering an arson attack.  The study also concludes that an increase in the number of open plan buildings and out of town developments are among factors contributing to soaring fire costs. 

It can be confidently expected that as claims rise insurers will increasingly review their options upon receipt of a claim, in particular a claim arising from a fire caused by arson and the number of repudiations can be expected to increase. Whilst it is of course right that insurers should be alert to the possibility of arson by the insured, it is inevitable that if levels of repudiation increase as a result of this ‘suspicious spike’, a number of perfectly valid claims will be refused.

Random malicious arson is alarmingly common. It is a complex social phenomena which is inexplicable to most of us. The ABI’s apparent assumption that the recent spike is probably down to an increase in self inflicted arson due to financial hardship is far too simplistic and ignores the possibility that random malicious arson attacks may also increase in recessionary times.

A wrongful repudiation by insurers is devastating for any business and leads to the financial collapse of all but the most cash rich of companies. An unfairness of the current law is that if the business has to take action to enforce payment under the policy and is successful, the damages awarded are limited to the amount of cover in the insurance policy. However, by the time a judgement is obtained consequential losses will have increased the claim to a figure well above the insurance limit of indemnity. We shall comment on this unfair aspect of the law in a separate article.