An Economic Appraisal of Aspects of Automatic Fire Defence

Abstract

The installation of systems of automatic fire defence in commercial and industrial buildings, apart from their protective value, may result in significant financial advantages. Although systems of automatic fire defence are frequently installed in the larger commercial and industrial buildings, in particular industrial buildings with high fire risks, the minimum size and use of buildings where such a system results in a positive financial return has not been established. This study sets up a framework within which the financial implications of the installation of systems of automatic fire defence can be assessed. Firstly by examining the working of the fire insurance market, in particular the tariff system, and secondly by a survey of systems of automatic fire defence together with their additional initial costs and subsequent running costs. A discounted cash flow technique has been used to assess the financial return. The technique is based upon a company's cost of capital and a theoretical cost of capital has been established which is both net of inflation and taxation. Taxation allowances and regional development grants have also been examined in detail. To ascertain the financial return from the installation of an automatic fire defence system, in particular a sprinkler system, four case studies were undertaken; two of these relate to industrial buildings and two to retail premises. The case study buildings are considerably smaller than the size of buildings where sprinkler systems have normally been installed in the past. The rapid rise in fire losses during the past decade has resulted in considerable increases in insurance premiums. The saving on these premiums, together with taxation allowances for the installation of automatic fire defence systems, resulted in cash flows which produced a positive present value following the installation of a sprinkler system for all four case study buildings. This suggests that there are considerable financial advantages accruing from the installation of such systems.