HOME FIRES: Make sure you know the risks
This article was first published in the 1st quarter 2019 edition of Personal Finance magazine.
Hundreds of wildfires flare up in South Africa each year, laying waste to vast tracts of land and destroying everything in their path. Most of these fires run their natural course, or are managed by firefighting resources, with minimal loss to life and property; but occasionally things do not go to plan. In June 2017 the inhabitants of Knysna in the Western Cape experienced the devastating power of wildfire first hand.
There were 26 wildfires raging around Knysna at the time, fuelled by dry vegetation and driven by constantly shifting winds that reached speeds of up to 95 km/h. Under these conditions fire fronts can advance up to a kilometre every 10 minutes. More than 450 formal homes and 150 informal homes were destroyed in what has since been recorded as South Africa’s first ever “Type I” fire catastrophe. The insurance industry paid out more than R3.3 billion to policyholders in the aftermath. This year’s fire season saw significant wildfires burning in and around George, Southern Cape – fortunately with less damage to property than in 2017.
Wildfire is not the only threat to your buildings and household contents. Electrical fault is singled out as the most common cause of fires in formal residential areas whereas open flames used for cooking or heating are typically to blame for fires in informal settlements. “Many of the fire claims we process result from faulty electrical installations. Power interruptions are also a contributing factor due to people forgetting that they have left appliances on when they leave home,” says Delouise Marais, head of personal lines support at Hollard Insure. “Kitchen fires due to pots being left on stoves are also common.”
Oakhurst Insurance says that fires result from the presence of a combustible material and a source of ignition, citing examples such as a candle falling over on paper or cloth, a curtain being blown against the element of a heater, a dishcloth left on a stove plate or in the oven; a pot of oil left unattended on a stove plate, incorrect storage of flammable substances; electrical shorts close to curtaining, bedding, clothing or other combustible materials, or natural phenomena such as lightning and veldfires.
According to the Western Cape Disaster Management Centre, house fires are most often caused by electrical faults or carelessness in using candles, heating appliances and cooking fires, while wildfires are often caused by discarded cigarettes or matches. “Most veldfires are caused by inconsiderate or careless human behaviour, such as not properly extinguishing fires used for cooking, braai or camping, or carelessly discarding still-burning cigarette butts,” says Frikkie Wepener, head of underwriting at Oakhurst Insurance.
Claims for fire damage cost South Africa’s insurance companies millions each year; but there are two factors that limit the industry’s exposure to this peril. Firstly, personal lines fire claims are infrequent when compared to other categories of insurance. And secondly – despite the devastation caused by the 2017 Knysna catastrophe and the 2013 Saint Francis fires – most fire claims are for partial rather than total losses. “Fire events in formal residential structures are hardly ever declared a total loss in insurance terms,” says Fanus Coetzee, head of Santam claims. “The total insured value of a residential property normally caters for the structure, outbuildings, hard surface cover, swimming pools and perimeter walls. A residential fire normally causes damage to the main structure and perhaps some outbuildings, with components such as the concrete surface bed, perimeter fence and pool usually surviving intact”.
In most cases where fire engulfs an entire building, the resultant damage from soot, water, smoke and fire-fighting efforts results in additional and irreparable damage to both structure and contents. “Buildings are often a total loss because the fire not only destroys the roof, but excessive heat damages both cement and brick in the walls, which then have to be rebuilt – the foundation may survive, but often heat and water combine to form cracks, which may cause future damage,” says Wepener.
There are various ways in which homeowners can reduce the risk posed by fire. Following the age-old adage that “prevention is better than cure”, the first defence is to take steps to prevent fire and minimise the damage should a fire occur. The last line of defence is the financial protection offered by a personal lines insurance policy. Many of the steps you can take to prevent fire are inferred in your insurance policy wording and it makes sense to consider how fire risk is set out in this document.
A personal lines insurance policy contains several sections that enable you to insure your building structure, fixtures and fittings thereto, perimeter walls, retaining walls, gates, fences, outbuildings, outdoor equipment as well as the contents and personal effects contained inside the building against partial or total loss from a wide range of loss events (also referred to as perils). Fire is ordinarily accepted as a standard peril for buildings and contents; but you should always refer to each section of your policy for a complete list of perils that are covered as well as the exceptions, terms and conditions, or limitations that apply.
“If you insure your home or its contents, fire is one of the perils that should be automatically included,” says Marais, adding that it would be highly unusual for fire to be excluded under the buildings or contents sections of a personal lines policy.
“It is important that you verify your fire cover under several sections of the domestic policy, notably buildings, contents, all risks (both specified and unspecified) and possibly even the vehicles section,” says Gerhard Sonnekus, head of client services at Oakhurst Insurance. “In those rare instances where a vehicle is covered for third-party damage only, there may be no cover for loss or damage caused by fire – even if the vehicle was parked in the garage at the risk address – due to the buildings and contents sections of the policy excluding damage to motor vehicles”.
Amount of cover
With an understanding of how fire risk is accommodated in your personal lines insurance policy, you should consider the amount of cover provided under each section. “You must make sure that the insured amounts for each of the items on cover under each of the policy sections are adequate – you will specify the replacement value for contents, buildings and items in the all risks section of the policy and the market value for motor vehicles,” says Coetzee. Insurers usually handle the replacement of building and contents on a “new for old” basis as opposed to the “reasonable market value” applied in the case of motor vehicle losses. It is important to note that neither the municipal valuation nor the estate agent’s estimate of your home’s value are suitable for insurance purposes.
“To calculate an appropriate insured value for your home you must use the current building cost per square metre with due consideration for the construction method, the level of finishes in the existing building, the value of additions to the building over time, and the current cost of replacement thereof,” says Wepener. The same holds for your contents section where clothing, furnishings, equipment and the like should all be insured for their current replacement value on a new-for-old basis.
The underinsurance of buildings and contents has been singled out as one of the leading causes of stress at claims stage. “You must always insure your buildings for the total cost to rebuild the entire building and outbuildings at today’s building costs – assuming a total loss. This amount must include the cost to remove all the rubble and the drawing up of new building plans and getting them approved – if the sum is too low you will be underinsured,” says Marais.
Similar care should be taken in calculating the replacement value of household contents. “A great way of ensuring accurate valuations for contents is to maintain a proper inventory of all valuables and ascribe the replacement value to each item to ensure the overall value is accurate – this will help avoid disappointment at claims stage,” says Mercia Wallis, head of business enablement at Bryte.
If you are underinsured, the insurer will apply the “‘average” principle, in terms of which the pay-out for damages to your property is reduced pro-rata with the percentage of underinsurance. “Under the average principle, the insured is considered his own insurer for a proportionate share of the loss, even in the case of a partial loss, and will not be compensated for the full extent of the loss,” notes Sonnekus.
“Whether a policyholder is affected by a natural disaster such as a fire or flooding or human-induced incidents such as theft or accidents, it can be one of the most frustrating experiences to realise – after the fact – that you were not adequately insured to begin with,” says Coetzee. He notes that underinsurance was a salient issue that arose following the Knysna fires catastrophe. It is thus a good idea to have a professional valuation of the property at the inception of the policy and at regular intervals thereafter. It makes sense to adjust these insured values following any additions or alterations to your property or if new items are acquired.
You should speak to your insurer or insurance intermediary to get clarity on any aspect of asset valuations on your policy before disaster strikes. “It is also extremely important that the construction of your home is correctly stated on your policy document – non-standard construction like a timber house or thatch roof need to be disclosed to insurers,” says Coetzee.
While reviewing your insurance policy you should also note the terms and conditions for additional cover after a fire. If your home is uninhabitable following a fire, your insurer will (subject to the policy terms) pay for alternative accommodation, make an interim payment to cover basic needs for food and clothing, and pay for the safeguarding of the damaged property. An area that causes frustration at claims stage is that the insurer is unlikely to pay for alternative accommodation following a partial loss where the property is deemed habitable.
Advice from insurers
Personal Finance quizzed some of the country’s insurers on the best way for homeowners to reduce the chances of a fire occurring and to minimise the losses should one occur. Wepener observed that fire prevention has both a formal and informal component to it: “The formal component requires that a homeowner adheres to all building regulations relative to fire safety and fire prevention, while the informal side is a matter of common sense.” The regulations that apply to thatch roofs, chimneys and gas installations are contained in South African National Standards (SANS) bulletins; but there are also local bylaws that regulate aspects such as use of property or proximity of structures to property borders. You should, for example, ensure that you have the necessary electrical compliance certificate for your house.
Santam expects its policyholders to exercise their duty of care insofar mitigating fire losses, including “taking all reasonable precautions and all reasonable care to prevent or minimise loss, damage, injury or liability”. There are a long list of steps that policyholders can take, including
to safely dispose of fires, hot ash, coal and cigarettes, using power tools in clear, open areas,
Ensuring that electrical appliances are correctly wired,
Ensuring that your home has the necessary electrical compliance certificate, avoiding multiple-appliance overloads,
Keeping the area around your home clear of flammable materials, burning rubbish only on cooler, wind-still days (and only if you have a burning permit), and
Never leaving an open fire or flame unattended.
Other tips include the proper insulation of chimneys (especially where they pass through thatch roof structures) and adherence with electrical installation regulations and fire safety standards for your home’s electrical wiring. Don’t insert anything into a wall socket except a proper three-pin or two-pin plug; don’t splice electrical wires by twisting them together and then leaving the wires bare; use approved connectors and make sure electrical wires are properly isolated and enclosed; and don’t fiddle with distribution boards and switches. “Thatch homes and homes built with non-standard construction are more susceptible to fire than homes built with walls of brick, stone or concrete or roofs of slate, tile, concrete or metal – if your roof is of thatch construction you must ensure that it is properly maintained and that the necessary precautions are in place,” says Marais.
Insurers provide additional pointers for homes that are in areas prone to wildfires. Simple maintenance such as regular cleaning of gutters to prevent the build-up of dry, combustible material in contact with the building can help a great deal as will trimming bushes and trees in proximity to the building to prevent them over-hanging the roof. Homeowners are also encouraged to keep vegetation within five metres of the property as short as possible to create a fire break. The best advice is to “be fire conscious and fire safe” always.
“Education around fire hazards and how to mitigate against these should be a national focus,” says Wallis. “Insurers, the wider insurance industry and government should be more engaged in promoting awareness and encouraging safe practices insofar fire risk. Wider collaboration with associations such as the Fire Protection Association of Southern Africa could assist in raising awareness and keeping South Africans and their valuables, safe”.
The cost of fire catastrophe
It is difficult to put exact rand values to the economic losses following wildfire catastrophes; but with individual homeowners typically insuring their buildings and contents for values exceeding R2 million the cost quickly escalates. In Aon Benfield’s 2017 Natural Catastrophe Report, the world’s leading reinsurance intermediary reports the 2017 Knysna fires as South Africa’s costliest insurance event, topping US$275 million in insurance payouts. This affirms domestic insurers’ estimates of up to R6 billion in economic losses. By comparison the November 2012 St. Francis Bay fire, which resulted in 76 mainly thatch roof homes and buildings going up in smoke was a “minor” event. Insured losses came in at around R300 million with Thatch Risk Acceptances (an underwriting manager) and Santam picking up most of the ensuing claims.
Local losses pale into insignificance when compared to the damage caused by this year’s extraordinary wildfire season in California, USA. By early September California’s Insurance Commissioner, Dave Jones, confirmed that more than 10000 insurance claims totalling US$845 million had been filed following two northern California catastrophes, the Carr and Mendocino Complex wildfires. These claims follow the record US$10.4 billion in fire losses recorded in the devastating Wine Country fires in October 2017.
Against this backdrop any sensible homeowners will want to make sure that his or her building and contents are adequately covered against the fire peril via a personal lines insurance policy.
Eight tips to manage fire risk in your home
Many of South Africa’s insurers publish useful insurance tips for protecting your home. Hollard offers a series of insurance tips, with tip #1 “Protecting your home” and tip #3 “Thatched roofs” worth noting.
Santam offers a calculator to assist with valuations. The following handy hints should help you get your home and content insurance spot on:
Check that your home and contents are insured for the correct replacement values;
Review your insurance policy annually and note any additions, deletions or changes in replacement values;
Keep an up-to-date building replacement cost evaluation and contents inventory;
Comply with building codes and regulations with special attention to electrical installations, chimneys and fire mitigating requirements for high risk buildings (thatch or other non-standard construction materials);
Pay close attention to the maintenance of your home, especially keeping gutters clear of waste (although usually done to prevent storm water damage this material also fuels fire);
If you live in a high-risk area, you should create a defendable space of up to 40 metres around your home – cut back or mow vegetation, choose plants with high moisture content, prune and remove overhanging tree branches.
Consider aluminium instead of plastic gutters, as the latter are highly combustible;
Pay close attention to the positioning of wooden decks.