This year marks the 350th anniversary of the Great Fire of London. We are familiar with the story of how a baker on Pudding Lane was responsible for the fire that destroyed much of the City of London in 1666. What is less well known is the positive impact it had on building regulation, the development of the insurance industry and the eventual introduction of a municipal fire service.
The Great Fire in context
It is estimated that the rebuilding costs were around £10 million or £1.1 billion in today’s money. Should a fire of this scale occur in the same area today, the disruption to thousands of businesses and travel would be unprecedented. Today six Underground stations are located in the footprint of the Great Fire. World-famous buildings such as St Paul’s Cathedral, The Old Bailey, The Royal Exchange, and The Bank of England would be engulfed. It would be a narrow escape for 30 St Mary Axe (‘The Gherkin’), The Leadenhall Building (‘The Cheesegrater’), 20 Fenchurch Street (‘The Walkie-Talkie’) – although they would probably be evacuated and smoke damaged.
The Association of British Insurers (ABI) have estimated that the entire cost of a similar fire in today’s London, would be £37 billion – with the actual cost rising further if you were to take into account the cost of business interruption.
Many famous buildings and the iconic skyline of modern London is a direct result of the Great Fire and subsequent building acts and regulations. The Rebuilding Act of 1667 stipulated that new buildings be built to reduce vulnerability to fire, requiring that houses be made out of stone instead of wood.
London’s burning - insurance matters
Property and business insurance as we know it today can be traced back to the aftermath of the fire in 1666. To protect people against loss by fire, a merchant by the name of Nicholas Barbon developed a plan to minimise losses by proposing that each property owner pay a small contribution into a mutual fund that would cover losses by fire. This is not dissimilar to the way that reinsurance is placed now where risk is spread across more than one underwriter.
Following the fire these mutual fund operators were in effect property insurance companies. They were responsible for the formation of the fire brigades in London. By the end of the seventeenth century a number of independent insurance companies had been founded, each producing their own firefighting team. These company-owned brigades were not there for the protection of the public, they were specifically employed by their respective insurance companies, to minimise loss to the insurer.
Whilst an improvement to the almost non-existent firefighting capacity in London, this system was unduly complicated and led to confusion. Initially firefighters were not able to determine which buildings were insured and if they were, which insurance company was responsible for it. To identify that a property was covered by fire insurance, a fire mark (a small sign), was issued by the insurance company and attached to the building. Many of these emblems are recognisable in insurance company logos we see today.
It became clear that there was a need for an independent organisation that served the public good. To form a municipal fire service, the insurance companies reached an agreement and donated their equipment to the city. Firefighters were to fight fire, whether the building was insured or not. This system provided the framework for the modern London Fire Brigade and fire services around the country.
By around 1720, insurance companies had developed common categories for rating the property risks they encountered. These categories, which lasted well into the 19th Century, are an early demonstration of insurance being priced on the basis of risk. A practice that still holds true in today’s insurance industry.
While building regulations improved matters, London still saw serious fires in the centuries that followed. A blaze in 1902 left eight people trapped on the top floor of a building, and some of those lives were lost due to the stair and escape routes being engulfed by flames. Incidents such as this, and the ways in which insurers judged risk, further exerted an influence on building design and on building regulations. London County Council was given powers under the London Building Acts (Amendment) Act 1905, to require building works to be carried out in certain existing buildings to facilitate the safe escape of the occupants in the event of a fire.
The legacy of the Great Fire
The insurance industry and fire protection rules have both come a long way since 1666. The legacy of the Great Fire has meant that insurers and advisers continually adapt their services to reduce risks, including the provision of risk management services, and access to health and safety information. Insurance experts advise having a business continuity plan and business interruption insurance in place should a ‘business-stopping’ event, such as a fire, occur. This forward planning will allow a business to continue operating under adverse conditions.
Watch out for our next article that explains the benefits of business interruption planning and insurance.