Risk Insider: Michael Korn

6 Fire Loss Scenarios to Review Before It’s Too Late

By: | May 23, 2018

Michael Korn is a Managing Principal and the Property Practice Leader for Integro Insurance Brokers. He oversees the firm’s property brokerage services including growth, placement, market relations and product development. Risk management is in Mike’s DNA — he’s the son of a career risk manager and the father of a broker and an underwriter. Mike can be reached at [email protected]

What could happen to your facility in a fire? More appropriately, what could go wrong at your facility and cause a property loss?


That’s a good question and there are multiple answers depending on how deep into severity you want to dive.

Property underwriters use a number of measures in determining their exposure to fire loss, the amount of capacity they will deploy, how much they will reinsure, and the price they will charge. Some of the terms are synonymous and though the differences between loss scenario approaches are subtle, they can have a significant impact on the quantum of loss estimates.

If you understand how an underwriter is evaluating your properties, you’ll be in a better position to evaluate recommendations and negotiate renewal terms.

Here is a guide to the most commonly accepted definitions of the various fire loss scenario approaches:

  • NLE (Normal Loss Expectancy): This is the loss estimate expected under normal conditions, with all fire protection in place and operating as expected. This is also the loss expected after a recommendation is completed.
  • PML (Probable Maximum Loss): This is the loss amount expected with some impairment to normally only one sprinkler system, but not total shutdown of all protection systems. For example, when one sprinkler control valve is closed.
  • MFL (Maximum Foreseeable Loss): Short of a plane landing on the facility, this is the worst-case fire scenario. The sprinkler systems don’t work; the fire department doesn’t arrive; the accumulation of combustible material is at its peak. It’s a free-burn situation. The only thing that will stop the fire from spreading is a significant firewall or space separation and eventually running out of combustible material to burn.
  • EML (Estimated Maximum Loss): This term is similar to the MFL, but may rule out “remote coincidences” and tends to be slightly lower.
  • MPL (Maximum Possible Loss or Maximum Probable Loss): Maximum Possible Loss is more akin to the MFL, while Maximum Probable Loss is similar to the PML concept. Possible assumes no protection; probable is more likely, with some protection services operable.
  • AS (Amount Subject): This is the total amount of value (property damage and time element) exposed to potential loss in a given fire area.

Loss control engineers visit sites to conduct surveys, which include an estimate of potential loss scenarios and the economic impact, including property damage loss and resultant business interruption as well as extra expense. Estimated loss amounts can be the same given the physical characteristics of a facility. For example, the NLE, PML and MFL at an unsprinklered wood frame facility could all be equal to 100 percent of the values exposed.

Underwriters who write Highly Protected Risks usually offer more capacity on individual risks. They can be more conservative in their approach to loss estimates, because they have more to lose and tend to use the MFL approach rather than underwriting to a PML.

If you understand how an underwriter is evaluating your properties, you’ll be in a better position to evaluate recommendations and negotiate renewal terms. &

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The R&I Editorial Team can be reached at [email protected]