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Loss prevention technologies

The untold story

Insurance Consulting and Technology|Willis Research Network
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By Simon Sølvsten | March 17, 2021

How can loss prevention technologies be used to influence property risk?

The use of technologies to lessen exposure and control vulnerability is rapidly changing. Due to speed of this change, very little is yet known on how new loss prevention technologies can affect Property risk. But, if organisations worldwide are to use these technologies in their strategic planning of risk mitigation, knowledge of where the highest net-benefits are to be achieved is crucial.

But the question is, who cares?

The role of a risk manager tends to be disrupted. With higher demands for financial focus, prioritization of efforts, and proof of what solution will add to the highest possible net benefit to the organization, the role of risk managers is changing. Furthermore, most senior corporate risk mangers do not report to C-level executives, and thus their voice is often filtered through layers of management before top-level board decision-making can focus on risk mitigation. This, coupled with a similar positioning of technology within many organizations, begs the question: how are risk managers supposed to succeed with their communication and prioritization of efforts when so little is known about the effect the numerous loss prevention technologies have on property risk?

Has there been sufficient research to support industry needs?

If we are to rely solely on academic research, the perception of loss prevention technologies impacts on property risk is non-conclusive. By dividing property risk into four sub-categories: Natural Catastrophes, Fire and Explosions, Crime and the Risk from Building installations, it is reasonable to argue that the most used technologies, in most countries, are perceived as:

  • Wet-floodproofing and Dry-floodproofing used to mitigate the risk of flooding.
  • Fire suppression systems, e.g. Sprinklers system and Automatic fire detection system used to minimise the risk of fire damage.
  • Target hardening, Burglar alarm and Closed-Circuit Television (CCTV) in order to reduce risk from crime.
  • Automatic water detection systems and Automatic water leak detection systems to cope with the risk from water baring installations.

Specific research supports that both Wet-floodproofing and Dry-floodproofing are associated with smaller damage when used; however, the results are not conclusive. Kreibich, Bubeck et al. (2015) stressed this problem in their review from 2015, and found that it is most likely that Wet-floodproofing reduces the damage ratio by approximately 47%; Dry-floodproofing approximately 26%; and temporary floodproofing with an approximately 24 % reduction in damage. One likely reason for the difference between wet and dry floodproofing is that dry-floodproofing most often requires appropriate human interaction to be most effective.

Whilst it is difficult to simulate real-world building fires and associated costs, it is found that most research supports the use of sprinkler systems. Despite variation in the meaning of the word effectiveness1, Frank, Gravestock et al. (2013) find in their review that sprinkler systems do work with a total effectiveness between 70% to 99%. Surprisingly, it has not been possible to find literature that establishes the affect of automatic fire alarms, so it is unclear how these technologies influence fire damage.

Similarly, there is no clear research that addresses the use of either Automatic water detection systems or Automatic water leak detection systems, and thus the advantages of investing in such technologies is unknown. More research is needed before the true net-benefits of Automatic water leak detection can be understood.

In understanding how technology can be used to influence crime risk, research is seen to be particularly challenged by understanding how the technology influences criminals' behaviour. In general, target hardening , e.g. locks, fences etc., is perceived to have the highest impact on burglar reduction; however, no clear estimation of the effect is definite. Even though there is a general belief that burglar alarms have a positive affect on risk, there is a great deal of variation in results. While some found that burglar alarms are associated with a decrease in risk, others find that burglar alarms increases the risk2. These variations in research results makes it hard to assess whether investment in burglar alarms can be justified. A common theoretical discussion hints that the effect of burglar alarms may be diminishing, but that the technology will have a positive effect on the actual cost of the damage if exposed to crime. The general argumentation suggests that noise from burglar alarms increase the burglar's level of stress and thus limit the time available.

Welsh and Farrington (2003), Welsh and Farrington (2009) and Piza, Welsh et al. (2019) studied the existing literature on the outcome of video surveillance on crime. They clearly describe the variation in research results and the complexity of measuring its effect. In general, the positive impact of CCTV is seen to be greatest in delimited areas, such as car parks, where 37% reduction in crime can be seen. However, the use of video surveillance in other settings such as residential areas has far less influence – around 12% reduction.

Trust in the progress

Common to the general research on loss preventions impact on property risk is the lack of inclusion of economic models e.g. cost-benefit analysis, which in particular limits the application of the research in an industrial context. However, there are clear benefits to developing a better understanding to support risk managers' challenges and provide clear guidance to organization and government initiatives in the future. In a series of three papers to be published throughout 2021 and 2022, the Willis Research Network will present new research on how underwriters respond to the use of loss prevention technologies under premium determination, what quantitative effect and net-benefit property owners can gain in damage reduction through investment in loss prevention, e.g., Fire alarm systems, sprinkler systems, burglar alarms, Access Control, CCTV, water leaks detection systems etc., and last but not least insight to how risk managers can estimate the need for loss prevention investments, the level of deductibles and the need for risk transfer.

This article highlights key findings in:

Sølvsten, S. (2021). "A Literature review - Technologies and property loss prevention – The unknown effect." unpublished.

Cited articles:

Frank, K., N. Gravestock, M. Spearpoint and C. Fleischmann (2013). "A review of sprinkler system effectiveness studies." Fire Science Reviews 2(1): 6-undefined.

Kreibich, H., P. Bubeck, M. Van Vliet and H. De Moel (2015). "A review of damage-reducing measures to manage fluvial flood risks in a changing climate." Mitigation and Adaptation Strategies for Global Change 20(6): 967-989.

Piza, E. L., B. C. Welsh, D. P. Farrington and A. L. Thomas (2019). "CCTV surveillance for crime prevention." Criminology & Public Policy 18(1): 135-159.

Sølvsten, S. (2021). "A Literature review - Technologies and property loss prevention – The unknown effect." unpublished.

Tilley, N., R. Thompson, G. Farrell, L. Grove and A. Tseloni (2015). "Do burglar alarms increase burglary risk? A counter-intuitive finding and possible explanations." Crime Prevention and Community Safety 17(1): 1-19.

Tseloni, A., G. Farrell, R. Thompson, E. Evans and N. Tilley (2017 (A)). "Domestic burglary drop and the security hypothesis." Crime Science 6(1): 3.

Tseloni, A., R. Thompson, L. Grove, N. Tilley and G. J. Farrell (2017 (B)). "The effectiveness of burglary security devices." Security Journal 30(2): 646-664.

Welsh, B. C. and D. P. Farrington (2003). "Effects of Closed-Circuit Television on Crime." The ANNALS of the American Academy of Political and Social Science 587(1): 110-135.

Welsh, B. C. and D. P. Farrington (2009). "Public Area CCTV and Crime Prevention: An Updated Systematic Review and Meta‐Analysis AU - Welsh, Brandon C." Justice Quarterly 26(4): 716-745.

Footnotes

1 Effectiveness ranges from acceptable a maximum 20% damage to the building to fire spread between fire cells.

2 Tilley, N., R. Thompson, G. Farrell, L. Grove and A. Tseloni (2015). "Do burglar alarms increase burglary risk? A counter-intuitive finding and possible explanations." Crime Prevention and Community Safety 17(1): 1-19, Tseloni, A., G. Farrell, R. Thompson, E. Evans and N. Tilley (2017 (A)). "Domestic burglary drop and the security hypothesis." Crime Science 6(1): 3, Tseloni, A., R. Thompson, L. Grove, N. Tilley and G. J. Farrell (2017 (B)). "The effectiveness of burglary security devices." Security Journal 30(2): 646-664.

Author

Head of Exposure and Vulnerability Research

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