DFS 14 - Association of British Insurers

Introduction

1.The Association of British Insurers (ABI) represents nearly 400 member companies, which between them provide 94% of the UK’s domestic insurance. It works on behalf of the UK insurance industry to keep standards high and to make its voice heard. The ABI is grateful for the opportunity to respond to the Welsh Assembly’s proposal to introduce sprinklers in all new homes.

Comment

The objective of the Welsh Assembly’s proposal is to reduce the number of deaths and injuries caused by fire. The ABI agrees that domestic sprinklers are likely to reduce the number of deaths and injuries caused by fire and we fully support this objective.

Insurers are also concerned with the economic cost of fire and paying claims resulting from fire, both from household and business customers: in 2007 ABI members paid £750m in commercial fire claims and £350m in household fire claims.

Insurers encourage the installation of sprinklers in commercial buildings and offer premium reductions to businesses and schools that install them. However, because home insurance premiums are generally much lower than business premiums, the scope for offering discounts to home owners that install sprinklers are much more limited. Flood, subsidence and theft claims account for more of the total household insurance claims cost than fire. One insurer estimates that fire equates to around 7.5% of the buildings and 7% of the contents premiums.

Even if we assume that the successful operation of sprinklers halves the cost of fires, this would only result in a reduction in premium of 3 or 4%, or £10 on a £300 premium. However, insurers are concerned that the installation of sprinklers may increase claims in other areas. Insurers are very concerned about the increasing number of claims from “escape of water” they are facing, possibly as a result of more en-suite bathrooms being installed in houses and greater use of things like dishwashers. There will also be a number of claims arising from sprinklers going off accidentally.

Insurers are therefore concerned that sprinklers are installed and maintained by competent people and that the sprinkler system is properly explained to the homeowner. There will also have to be a sufficient water pressure maintained if the sprinklers are to function properly.

Conclusion      

The introduction of sprinklers in new homes in Wales is likely to achieve its objective of reducing the number of fire deaths and injuries, however, its impact on insurance premiums will only become clear over a period of time. There is likely to be a positive impact on the number and cost of fire claims but this is likely to be offset by a negative impact on the number and cost of escape of water claims.