Grenfell fire has little impact on property insurance market

The fatal fire at the Grenfell tower block in London on 14 June has not drawn a knee-jerk reaction from insurers, but they are asking more probing questions. The fire, in which about 80 people are thought to have died, has put the issue of fire safety in the limelight, raising important questions around cladding, sprinkler systems and evacuation procedures for tall buildings. Norway’s Protector Forsikring is the property insurance provider for the Royal Borough of Kensington and Chelsea, which owns Grenfell Tower. In July, it said the fire is likely to cost some £50m, with much of the loss being covered by reinsurance provided by Munich Re. Some estimate the loss, however, as high as £500m, potentially making the incident one of the largest fire losses in Europe in recent times. But insurers appear to be taking a pragmatic approach to the incident, with little or no change reported for insurance cover renewing in recent months. Insurers’ response to commercial property renewals since Grenfell has not altered in terms of price or terms and conditions, according to Ian Kennett, managing director of Marsh’s real estate practice in London. “Insurers have continued to take a measured approach; in some cases, they have made further enquiries regarding the nature of construction and types of cladding, if utilised,” said Mr Kennett. Under the UK’s Insurance Act, insureds have a duty to provide a fair presentation of risk to insurers, so these additional enquiries are not unexpected. Marsh expects continuity of cover and the provision of workable solutions from underwriters in the property sector. The media has focused on the possible role of external cladding and insulation that was added to the Grenfell Tower in a recent refurbishment. In a briefing paper, Marsh said feedback from insurers suggests that they will not seek to withdraw or change coverage for existing clients where cladding is present. In the public sector, insurers are now seeking far more detail in respect of building portfolios as part of the underwriting process, according to Adrian Willmott, public sector practice leader at Marsh in the UK. But like their commercial counterparts, public sector insurers are taking a measured approach to the issue of cladding. “Feedback from insurers to date suggests that they will not seek to withdraw or change coverage for existing clients where cladding is present. Whether this commitment extends beyond the expiration of the current policy remains to be seen,” he said. However, the main renewal season for public sector bodies in the UK is next spring. “April is likely to provide a clearer indication of Grenfell’s impact, particularly as it follows after many carriers’ reinsurance renewals for 2018,” said Mr Willmott. In response to the Grenfell Tower fire, insurers are already asking public sector clients to provide additional information regarding their high-rise buildings, including the type of cladding used and whether sprinklers are fitted, according to Marsh. Cladding is used pretty much across the construction industry, from residential blocks, offices and factories to hotels and hospitals. At the same time, cities are witnessing a boom in the construction of tall buildings. Similar cladding to that used in Grenfell has been implicated in other fires, such as the devastating fire at the 21-storey Lacrosse apartment building in Melbourne, Australia in 2014. According to Tom Roche, senior consultant, international codes and standards at FM Global in the UK: “When you examine fires in tall buildings that have occurred across the globe, you can see that the use of combustible materials has become a significant factor in the size of the event. These combustible materials, combined with a lack of automatic fire sprinklers, play a significant role in property-related damage across the world.” Questions around construction methods and cladding are not new, but they have shifted, according to Mr Kennett. He recalled insurers’ concerns in the 1990s over the use of composite panels in the food industry after several major fires. Changing environmental legislation and a general focus on energy efficiency is driving a trend towards the use of more insulation in buildings, noted Michael Schmidt, an expert in property prevention at AXA MATRIX Risk Consultants, part of French insurer AXA. However, fire safety of insulation depends on the material used and methods of installation, he added. “As often, the prevention is a key leverage for reducing the fire risk. For example, AXA recommends the use of non-combustible insulation. If combustible insulations are to be used, then polyurethane and polyisocyanurate insulation products are to be preferred, but in Grenfell the insulation used was polyethylene, which creates burning droplets and a flammable liquid when it burns,” Mr Schmidt said. Zurich confirmed that it will not be withdrawing any existing cover for customers, even if they have buildings with similar cladding to Grenfell Tower and do not make immediate changes. “We accept that there are many reasons to clad an existing building. We strongly recommend that refurbishment contracts are reviewed to establish the type of cladding systems being proposed, that the specifics of the property are considered and appropriate cladding system and components are used,” Zurich said in a statement. “We strongly advise against the use of combustible materials in such systems including materials described as ‘fire retardant’. Our strong recommendation is that the materials used should be fire resistant or incombustible,” it added. Zurich is also recommending that its clients should be fully aware of the construction materials used in their buildings, so that they can act quickly should any guidance or regulations be updated. In its Grenfell paper, Marsh noted that the market for standalone property insurance with high-risk cladding was limited before the Grenfell Tower fire. “We are experiencing a further constriction in the number of insurers willing to underwrite new risks with composite cladding panels that are non-Loss Prevention Certification approved,” it said. “Insurers’ premium rating for this type of construction is already significantly higher than for other construction types. We expect this trend to continue as underwriting appetites reduce,” it added. Insurers expressed concern over tall buildings, as well as changing construction methods, prior to the Grenfell fire. There have been other fires in tall building is in recent years, including several in the Middle East and Asia. These include the 2015 New Year’s Eve fire at the Address Downtown Dubai, and the 79-storey skyscraper Torch Tower in Dubai, which suffered two fires in as many years. In particular, underwriters are worried that the increased use of timberframe construction and modular construction techniques could potentially lead to large losses, according to Mr Kennett. “There is a focus within the insurer community on methods of construction, and underwriters are asking more questions,” he said. However, despite some high-profile fires, there is not an obvious decrease in fire safety for tall buildings, according to Mr Kennett. Of the 7,000 to 8,000 fires in UK blocks of flats every year, only 30 require evacuation of more than five people by fire and rescue services, he noted. Fire claims from buildings have, if anything, been trending down compared to claims for manufacturing equipment and business interruption, according to Mr Schmidt. Global analysis of AXA Corporate Solutions claims has not identified an increase in fire incidents that share characteristics with Grenfell, said Corinne Southarewsky, chief claims officer at AXA Corporate Solutions.

Grenfell fire has little impact on property insurance market

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