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GUARANTEEING A HIGH BURN RATE FOR HOMES

The fire insurance industry insured properties, but not lives. In 1895 a group of New England insurance companies created the National Fire Protection Association (NFPA) to write fire codes for the insurance industry. The codes generally covered building construction criteria and the recommended safeguards for industrial processes and commercial operations. These codes, primarily written and enforced by the insurance industry at the time, allowed the insurers to control the probable number of and the average size of the losses. The insurers were also able to control the income from the businesses that they insured. This was possible because the industry could price fix. The prices (rates) were set by the insurance rating bureaus. Thus, by writing and enforcing the codes and by being allowed to price fix (set the rates) the industry had the ability to control the monies entering the system and the monies being paid out for fire losses. Thus, profits were guaranteed. There were, however, many insured properties that had the potential to cause catastrophic size losses. Some industrial plants and commercial properties had values at risk that were so great that an insurer could be bankrupted. Therefore, special safeguards were necessary to prevent catastrophic losses. Some of the special safeguards taken to limit the size of any one loss were fire walls or separation of buildings so that the areas that would be subject to one fire would be limited. But, the most important special protection for the super size properties was the fire sprinkler system that would control the early and still small fire automatically. In addition to the automatic sprinkler protection large plants were required to have built in hose lines and trained fire brigades so that water could be applied manually to back up the automatic sprinkler system. Water would be applied even before the public firefighters arrived. In non sprinklered properties (sprinklers were costly) a fire detection system could be installed. The detection system combined with on site hose and within the plant firefighters created a low loss situation. The basic fire solutions promoted by the insurers and the NFPA codes were special built in protective systems for the high valued high hazard properties and reliance on the law of averages to set rates for the non protected smaller properties. Sprinklers, fire detection systems and built-in fire hose with spray (or fog) nozzles plus on site fire brigades were not needed for small properties (especially homes). Underwriting procedures and the law of averages guaranteed that the dollars paid out due to small losses (say less than a million dollars) would add up to but a fraction of the income set by the rating bureaus. So, when the values and hazards were high the insurers demanded the installation of built in protective systems consisting of: 1. Automatic fire control including fire sprinklers plus at-the-ready hose lines and fire brigades. 2. Automatic fire detection plus immediate fire control with on site hose lines and brigade However, when the continuity of the insuring system itself could be guaranteed by limiting the size of any loss and by applying the law of averages to the class of properties, not only was special protection not needed, it was undesirable. Safely insuring many billions of dollars of small insurable risks when not protected was more profitable than insuring them protected.

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Insurance is a tax on the cash flow through the system. The monies in and the monies out can be accurately calculated based on the loss experience and the rating bureau set rates. Assume the insurers establish an average rate 5 dollars per 100 dollars at risk for a class of non protected properties valued at 5 billion dollars. That will produce a cash flow through the insuring system of 250 million dollars. If the underwriters calculated retention of 40 percent, 60 percent of the cash flow will pay losses and 40 percent (100 million dollars) will be retained for profits and overhead. Now assume that all the properties of the class are equipped with sprinklers. Because a sprinkler system produces what insurers refer as a no loss risk, it would probably result in an 80 percent reduction in rate because a no risk property cannot sustain a high rate no matter how hard the rating bureau tries. Insurance agents representing the insured would lose clients if they failed to demand some reasonable pricing relative the risk of loss. Assume the adjusted rate for the class of properties is now 1 dollar per 100 dollars at risk. The new cash flow through the insuring system is now 50 million dollars. If 40 percent of that cash flow is retained the industry would then retain only 20 million dollars. So, by allowing the class of properties to install sprinklers the retention by the insuring system would drop from $100,000,000. to $20,000,000. Of course this illustration is a simplified one but the reasons why the insurers and the NFPA created codes that are serious barriers to reducing the burn rate of small properties is obvious. Realizing that the burn rate of homes was maintained high for profits, I created a reliable fire detection code, a low cost fire sprinkler system for small commercial properties such as nursing homes, motel and high rises and an available water residential fire sprinkler system for homes. NFPA and the insuring system fought all three. Because the home market is the cash cow of the insurers, the NFPA has, for more than a hundred years, employed determined, dishonest and outright corrupt methods of preventing the marketing of low cost and reliable sprinkler systems and fire detection systems to homes. This especially explains why the NFPA (and UL) rigged fire tests and supported performance lies to ensure that only the ionization type (phony) smoke detector went into nearly all homes. The insurance industry, the NFPA and UL have been willing to maintain an extremely high and unnecessary burn rate in homes, and destroy tens of thousands of lives to maximize the profits from fire.

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http://www.wthr.com/Global/category.asp?C=123491&nav=menu188_2_2 . RICHARD M. PATTON, FIRE PROTECTION ENGINEER AUTHOR, THE AMERICAN HOME IS A FIRE TRAP President of: THE CRUSADE AGAINST FIRE DEATHS, INC. POST OFFICE BOX 196 CITRUS HEIGHTS, CA 95611 PHONE 916 721 7700 rmpatton@surewest.net

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