How to Control Risk [5 Techniques]

With the record breaking and devastating wildfires in California, private fire protection services are becoming more visible. These services are offered by insurers, such as AIG and Chubb, to add an extra layer of protection to their high value insured properties. Much of the media seeks to vilify the “rich” for engaging in this practice. However, as any of us would, we merely use the tools at our disposal to reduce our exposure to loss.

BusinessDictionary.com defines risk as, “A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action." This definition, as it applies to the insurance industry reads, “A situation where the probability of a variable (such as burning down of a building) is known but when a mode of occurrence or the actual value of the occurrence (whether the fire will occur at a particular property) is not.”

The most succinct definition of risk comes from NFPA 1250, “a measure of the probability and severity of adverse effects that result from an exposure to a hazard”.  NFPA 1250, Recommended Practice in Fire and Emergency Service Organization Risk Management, provides this definition of risk, and outlines risk managements plans and processes that should be implemented by fire departments.  Understanding that risk is an inherent part in our daily duties, there are five techniques that can be employed to manage or control this risk.

1. Exposure Avoidance
2. Loss Prevention
3. Loss Reduction
4. Segregation of Exposures
5. Contractual Transfer

Exposure Avoidance. This is risk control by simply opting out, and steering completely clear, of a particularly high hazard activity, event, or location.

Loss Prevention. This is the use of methods and measures to reduce the probability of a loss from occurring.  These can include inspections, audits, or training programs.

Loss Reduction. Theses are measures used to reduce severity of loss, even if engaging in a high risk activity. A good example would be the use of PPE when entering a structure fire. This would also include post-accident/loss activities, procedures, and processes.

Segregation of Exposures. This could also be a loss reduction tactic. This is accomplished by breaking large units into smaller ones, and distributing equipment and resources, throughout a large area. This reduces the likelihood of a total loss if all items, personnel, resources were to be located in a single area.

Contractual Transfer. This is the use of a formal insurance policy. This is affected by the transfer of responsibility from one entity to another.

These five methods of risk management are defined and outlined in NFPA 1250.  The insurance industry, however, would add one additional method to the list - retention.

Retention. This is when an organization acknowledges that there is a risk, and prepares for the loss (financially and physically) themselves. They are self-insured, which simply means that they control all the money, instead of an outside or third-party “insurance company”.

High Cost of Non-Compliance, Nashville, Indiana

Read other accounts of the high cost of non-compliance.




NASHVILLE, Ind. -- A judge has decided that the owners of a southern Indiana concert hall destroyed in an arson nearly two years ago aren't owed any insurance money because they didn't properly maintain the sprinkler system.



Brown County Judge Judith Stewart ruled that the insurance company had no obligation to pay for the $3 million fire at the Little Nashville Opry.


The Herald-Times of Bloomington reported the concert hall had received a nearly $10,500 insurance payment in 2006 to repair frozen pipes, but instead disconnected pipes to the sprinkler system.


The September 2009 fire leveled the 2,000-seat hall near Nashville that had hosted many of country music's most famous acts since it opened in 1975.


"That's a shame because it really was good for the town and it brought big name music people to town, which drew a crowd, and that's what we survive off of here is numbers and people," said resident Alan Everroad.


"I work in one of the stores and we see the difference. We used to have buses come to stay here. Now we don't have that anymore," said Irene Lecy.


The ruling also makes it very unlikely that hundreds of people who bought tickets to future shows will get their money back.


"I think with the Opry situation, the thing that's most disappointing for us is that people don't get their ticket refunds back," said Jane Ellis, executive director of the Brown County Convention and Visitors Bureau. "It's been a hard situation for us because people call wanting their money back and there isn't anything we can do for it."


No charges have been filed in connection with the fire.


Article from http://www.theindychannel.com/news/28484194/detail.html.

High Cost of Non-Compliance

I jokingly tell people that the reason I got into fire prevention is because I don't need any more friends. Everyone seems to hate it when the fire inspector comes around. People seem to be most afraid of the potential cost to correct any fire code violations that the inspector may find.  However, as fire inspectors our responsibilities in code enforcement are to, not only protect ourselves, but also the business owner.

We protect the business owner by identifying fire hazards in their business.  By identifying and correcting these hazards loss of a business property, time, and lives can be avoided.  However, fire inspections also protect the business owner, by ensuring that if an incident does occur the businesses insurance company will make any necessary payments.  Often times, insurance companies try to find a way not to pay, and if the facilities are not up to current fire codes then it is easy for the insurance company to deny the claims.

The Insurance Journal recently reported that a fire destroyed, restaurant in Massachusetts was recently denied it's insurance claim, and court ordered to repay a $15,000 insurance advance. The judge based his ruling on the fact that the restaurant had been operating with an out of date fire suppression system. You can read the entire article here, Massachusetts Judge: Obsolete Fire-Suppression Means No Claims Paid.

As fire prevention professionals it is our responsibility to educate business and industry representatives on the fact that we are not just there to hurt them, fight against them, or shut down their business, but that we are there to partner with them to ensure the continued success and longevity of there enterprise.