The FINANCIAL — While the risk of injury or property damage at firework displays are key elements of firework insurance, brokers and underwriters must piece together insurance programmes that cover the hazardous materials long before these events, according to Lloyd's.
Most fireworks are manufactured in China and exported via marine cargo routes around the globe. Once imported to new countries, the fireworks must then be stored in specialist facilities before being physically moved to retailers or event organisers. Each of these supply and storage stages is subject to strict regulation and risk mitigation.
Murray Torrible founded Precision Broking – a specialist firework insurance broker based in the UK – in 2010, but has placed firework insurance ever since the insurance industry took a step back from offering firework coverage in the late-1990s. “There were a couple of incidents in the firework industry in 1997 that led to a big change in the insurance industry’s approach,” he teold Lloyds.com. “Suddenly insurers pulled away from the market.”
The fireworks industry is relatively small, and by 1997 it was apparent the premiums on offer to the insurance industry barely justified the extra cost, compliance and expertise required when most insurers usually excluded hazardous works and explosives from their property and liability policies. For this reason, the Lloyd’s market – home to numerous specialist syndicates already underwriting hazardous material risks for larger industries – is today a vital carrier of firework risk.
“Lloyd’s is absolutely essential,” said Torrible, who writes exclusively into the Lloyd’s market. “There are always Lloyd’s underwriters prepared to write what is perceived as a high risk liability, but there are few composite insurers willing to do so.”
“Almost all fireworks come from China these days and so a marine cargo policy is needed to cover the stock,” said Roy Musk, Commercial Account Director at Insurance Experts, who has been acting as broker for around half of the UK firework industry for 20 years.
“I like to offer a contingency cover to supplement the Chinese cost insurance and freight (CIF) import cover, just to make sure my assureds are properly compensated for loss or damage en route or whilst in the UK store or in UK transit,” he added.
The risk of combustion during marine transportation is mitigated by strict regulations on the type of containers used to ship fireworks – they must all meet UN standards and have been tested to ensure an explosion would be suitably contained. The imported fireworks themselves must also conform to ‘CE’ specifications and be traceable back to their factory of origin, Musk added.
However, according to Torrible, most UK importers are effectively treated as manufacturers when it comes to product liability. “We have not successfully gone back against the Chinese to recover [a claim], so have to treat the importers into this country as if they are manufacturing here,” he explained.
Storage is the next stage in the firework life cycle, and again safety measures are paramount, with the large firework companies usually leasing ex-military bunkers and facilities to store the materials far from residential areas and transport links – often underground. “All firework storage has to be inspected and licensed by the Trading Standards Agency, or for higher quantities the Health and Safety Executive, including minimum security arrangements,” said Musk.
While there have been a handful of major losses in the UK, “most of these sites are well managed enough and inspected, and the perils of having mass explosions are fairly small because the hazards are controlled,” said Torrible. However, he admits, if a fire breaks out at a storage facility, fireworks certainly “make a bad situation worse”.
Theft and water damage are other perils associated with storage – theft risk peaking in the lead up to Bonfire Night in the UK and other significant celebrations in other countries. According to Torrible, some UK importers have turnovers in the region of £5-10m, although due to the safety precautions of storage, it is unlikely any one building would contain more than £250,000 of firework stock.
Once the fireworks reach their final destination, the firework companies remain insured for product liability, while the organisers of the event have also made their own insurance arrangements. Lloyd's coverholder WorldWide Specialist Risks (WWSR) arranges public liability coverage of up to £20m for firework displays, as well as employers liability, cancellation and all risks coverage.
While fatalities at firework events are rare, injuries to spectators and damage to property do occur. According to Adam Waters, underwriter at WWSR, the biggest challenge is mitigating the risk of inexperienced event organisers. “To my experience there are not many claims, but when there are they can be substantial,” he said. “We send out the latest Government rules and regulations with our policies, make organisers aware of precautions, ask for event management plans and conduct site visits if needed.”
But according to Musk, public liability risk may be being overplayed. “It seems to have become the fashion for many more of my policyholders’ customers to demand £10m public and products limits. This is totally unnecessary in my opinion,” he said, explaining that contrary to public perception, firework contractors should not have to cover the whole value of the property at risk, as firework damage should be covered under building owners’ fire insurance policy.
It is easy to assume that the risks associated with fireworks culminate – like the fireworks themselves – on the one big night when they are ignited. But for insurers and firework companies alike, a fireworks display is the final step in a long process of risk mitigation and transfer that encompasses multiple perils.
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