When is a sprinkler not a sprinkler?

By Sanford Brown  |  August 21, 2015

Automatic sprinkler systems are a curious thing. You’d think they’d be pretty straightforward — either a building has one, or it doesn’t. Either it works, or it doesn’t. Not too complicated, right? But there are other categories of sprinkler systems, too — like the ones that may or may not exist. And some may not work even if they do exist. Those sprinkler systems are what I call “maybe sprinkler systems.”

I discovered maybe sprinkler systems when I helped a commercial property insurer analyze its book of business through a Verisk Insurance Solutions Portfolio Assessment. As you know, sprinklers are important and often a major determinant of a loss cost. In many buildings, the difference in risk between sprinklered or nonsprinklered can be huge.

In this particular insurer’s portfolio, we reviewed a sampling of 2,103 properties. The records on those properties revealed that 11 percent had incomplete sprinkler records and another 21 percent had incorrect information about the sprinkler system. That translates into 447 incorrectly classified properties.

When that number was further compared against our database of field-verified assessments, we found that 64 percent of the incorrect properties were identified as nonsprinklered when they were in fact sprinklered. As a result, the insurer might not have been charging a competitive rate based on the risk. Conversely, 36 percent of the incorrect properties were identified as having a sprinkler when they didn’t. That obviously presents the potential for tremendous uninsured risk. But the risk doesn’t stop there.

Assuming you have a property with an actual sprinkler, as opposed to a maybe sprinkler, does the system work? Was it designed correctly? Does the sprinkler cover all areas, or are there blockages? Is the water supply adequate to support it? And has the system been tested to confirm any of these conditions? That last question, testing, is the most interesting. It’s the easiest and least expensive factor for your insured to address and the only one that confirms all the others. Yet it’s also one of the most common deficiency areas on a sprinkler grading.

Avoiding premium leakage, minimizing the effect of inadequately priced exposures, and verifying property characteristics are ongoing challenges for insurers. Our Portfolio Assessment services help you meet those challenges through a thorough analysis of your book of business. Coupled with a property-specific Sprinkler Assessment Report, we provide perhaps the best way to avoid having “maybe sprinklers” on your book.

Find out more about the benefits of a Portfolio Assessment or Sprinkler Assessment Report on our website. You can also call your account executive directly or Verisk Customer Support at 1-800-444-4554, option 3.

Sanford Brown

Sanford Brown is the director of product development at Verisk – insurance solutions.