Warehouse fires and avoiding the risk

Air date: 7/26/23
Record date: 6/14/23

Zurich North America’s Joffre Mishall, Head of Property, U.S. National Accounts gives insight on the risks that come with the new warehouse trends and provides tips for proactive risk management.

Guest

Joffre Mishall
Head of Property for U.S. National Accounts
Zurich North America

Joffre Mishall is the Head of Property for U.S. National Accounts. With more than 30 years of experience in the insurance industry, Mishall has built strong relationships with internal and external stakeholders, enabling him to deliver strong results while balancing customer and business needs. Prior to joining Zurich, he spent 19 years at FM Global, where he held a variety of roles in property account management, claims and risk engineering.

Host

David Hilgen
Future of Risk podcast co-host
Editorial Content Manager

David is Editorial Content Manager for Zurich North America, working primarily with the company’s brand journalism site, Future of Risk. In addition to co-hosting the Future of Risk podcast, he works on external communications in support of Zurich’s sustainability efforts, manages media interactions with Zurich spokespeople and writes articles and thought leadership pieces.

Episode Transcript

DAVID HILGEN: Warehousing is big business and getting bigger every year. Since 2010, the number of warehousing and storage businesses in the U.S. has grown steadily every year from over 15,000 in 2010 to more than 20,000 in 2021, according to Statista, a provider of market and consumer data. Analysts say there are two main reasons for the increase in warehousing. One is the general improvement in the manufacturing sector after the great recession. Another reason is the continued growth of e-commerce in which consumers order products online and have come to expect rapid delivery. As the number of warehouses being built increases, so does the risk of warehouse fires. Advances in technology is helping companies pack more goods in ever larger distribution warehouses. This approach elevates the severity of warehouse fires. It's an issue that is costing businesses millions in losses and forcing risk managers and insurance providers to take notice. Welcome to Future of Risk presented by Zurich North America. I'm David Hilgen. Our guest today is Joffre Mishall, Head of Property, U.S. National Accounts for Zurich. Hi Joffre, welcome to the podcast.

JOFFRE MISHALL: Hi David. I appreciate you having me on today. You know, this been a major trend that we've been talking about quite a bit and it'll be nice to have a nice discussion on it.

HILGEN Great. So, Joffre warehouses been around as long as humans have needed to store their wares for hundreds of years. It seems lately, however, that warehouses are popping up all over the place. I see new warehouses being built in my hometown and have watched as sprawling new buildings go up along the local interstate highways for years. But that doesn't necessarily explain the increase in fire risk. What's going on there?

MISHALL: Warehouses by their nature are designed to store a large amount of material or goods at a location that can be easily accessed and distributed, right? So, they want to get their product out, they need to put it somewhere and get it out.

HILGEN: Yeah.

MISHALL: However, due to the demands of the e-commerce, everything's online, everybody's ordering online, they need to do this quick. And number two, due to the global supply chains that have been constricted, and hence we're not getting supplies as quickly as we want to …people are building larger warehouses domestically to make sure that they can meet these deadlines as far as distribution and delivery. So, in doing so, they're building more warehouses domestically here in the U.S. as well as other countries to make sure that they're closer to their delivery areas, whether it's a customer or someone's home or location. So, in doing so, they're trying to be faster. So how do they be faster? Well, they have try to automate as best they can, and that's why you're seeing a more advanced warehousing system than we've seen in the past.

HILGEN: It's pretty amazing. I've seen some images of inside warehouses. It's incredible what they can cram into those things. Can you share any recent examples of costly warehouse fires?

MISHALL: Yeah. Unfortunately, in the last few years we've had several fires that have hit the headlines, especially in the insurance industry. You know, in 2022 we had two major fires. One was a 1.2 million square foot fulfillment warehouse at a major retailer. It took 350 firefighters and 30 agencies assisting in fighting that blaze. That was a large enough fire where they didn’t even bother to reopen. And then February 22, that same year, we had a fire document storage warehouse in Illinois that burned. Again, that was a smaller location — 250,000 square foot facility — but it burned to the ground. It took two days to fully extinguish that fire. At one point, the required water to fight that fire was draining the municipality water supply. Again, not a good situation. You know, in 2021 year before that, another couple major fires: one was the size of a city block in California and created post-fire debris of basically two football fields.

HILGEN: Wow.

MISHALL: Also, in 2021, there was a fire — 1.2 million square foot — in North Carolina. It was a distribution center for a television shopping channel that was ranked the largest structure fire in the state's history. That's how large that was. And, you know, people order things from those television channels all the time. So, we're seeing more and more of those. It took crews from a dozen departments and 10 days to battle that fire and that's how crazy it's getting.

HILGEN: Yeah. It sounds like it's a perfect storm of concentration of risk, not just the building itself but all the contents inside and the technology as well.

MISHALL: Right.

HILGEN: So, warehouses have changed considerably over the last 60 years. The new warehouses are larger, they cover up to 30 football fields sometimes and [they’re] taller and packed tighter than ever before. They're now holding more volatile materials like plastics and aerosols and lithium-ion batteries. And they're being built in rural areas where local firefighters may be less prepared to deal with a warehouse inferno. What are some of the other trends that are creating greater fire risk in warehouses?

MISHALL: I look at the stock … as you said, it gets more complicated. It's got more gadgets and things of that sort. I think about when I open up the hood of the car and back in the seventies when I first bought my first car, you look at it and it was pretty easy. You had the engine, you had the carburetor, everything was right there. You had a lot of space in there to work. If you open up your car hood now it's packed. It's just packed with all computers, packed with wires, packed with everything you could think of. You can't get in there to work. That stuff is on the shelf in these warehouses now. It's packed tight with that kind of stuff. So, two things going on. Number one, you know, at a traditional warehouse back several years ago, you basically loaded things on a pallet and you stack pallets either in a stacked array or you put them into a rack storage system. Basically, what automatic sprinkler protections were trying to do was if you had the adequate flue space, which is between the actual stacking array or an aisle where you have to ride and then lift the stock up and put it in the rack … those were adequate to number one, allow a fire's heat to get up to the ceiling to activate our sprinkler system and then allow the water from the sprinkler system to come down through the racks and put out or suppress a fire. Really the NFPA 13 standard and insulation of sprinkler systems is built around that kind of technology. You know, now with e-commerce and warehouses, which is basically we're trying to get things in quick, we're trying to get things out, we're basically condensing this, so everything's becoming really dense. We call it too tall, too dense, right? Because you got storage going higher and you got storage getting tighter together. So, then we have these robots that go in and automatically pick and pull things out, drop it on conveyor, then that goes to distribution, and it finally gets pushed out the door. So, when you do this, you eliminate your flues and you eliminate your aisle space. So, now the big problem is that heat can't get up through that rack fast enough to activate the automatic sprinkler systems because it'll eventually get there, but your fire is so much bigger to finally activate it. Now, when the sprinklers do activate, they're way past their capacity and now the water coming out of there just isn't enough to suppress that fire. That basically started at the beginning. You can't get to the seat of the fire, right?

HILGEN: Sure.

MISHALL: So, you know, that's a big thing that's going on. The other piece of it is because they're condensed like that … they're dense … is the firefighters when they show up. So, sprinklers are there to basically keep the fire under control. The fire department shows up … their job is to actually extinguish that fire, but because these new warehouses are dense and they're very high — 40 feet or above — they can't get to the fires now. So, now they're basically trying to make sure that that fire doesn't get past the building. So, basically, everything inside is gone as far as they're concerned because they can't go in and put out the seat of the fire. So, they have to sit back and make sure that fire stays in that area. So, you're basically losing, you know, your warehouse almost a hundred percent.

HILGEN: Yeah. Well, it sounds like density's good for business, but it's bad for risk.

MISHALL: Right. Exactly. Right.

HILGEN: So, Joffre, you know, where there's fire, there's going to be smoke. Even if a warehouse fire is contained, what impact can smoke damage have on the facility and its contents?

MISHALL: You know, that's another issue that we've ran into and we've seen a lot in these recent losses regarding warehouses. As you know, the liability of putting products out there that might have some kind of damage or flaw is very high, you know, and people don't want to take that liability. So, when smoke starts gathering in a warehouse, back in the day, you could look at product, clean it up, and then put it back on the shelf and you could send it out. You know, now it's like if that product gets touched with smoke, technically it could be damaged, especially if it's a food material or if it's a material that absorbs smoke or it's a sterile environment that you can't have smoke. So now the smoke itself … even though the fire might not be taking out a lot of product … the smoke touching other product basically goes up and fills the whole warehouse. You could lose that whole stock anyway because of the smoke itself. Then, the water discharge from the sprinkler system — because the fire's bigger — you got more water coming out, hitting more product. Again, we're having potential damage to that entire stock. And again, we're losing the entire warehouse. Even if the fire was controlled and was eventually extinguished in one part of it, you might have taken out the whole warehouse from the smoke and the water from the sprinkler system.

HILGEN: Yeah. That's true. Smoke can be just as damaging as fire sometimes. What are some of the things that warehouse owners can do then to reduce their fire risk?

MISHALL: Well, the biggest thing is when you're designing a warehouse, number one: make sure you contact a good engineering company who's basically well versed in protection of that kind of environment. Number two: talk to your insurance carrier risk engineers. They can help you bring that exposure to the forefront to make sure that we're dealing with that situation and then they can help you design. “Hey, let's be careful not to go too high and let's be careful not to be too dense.” Yeah, you might lose a little efficiency, but you're not going to lose your warehouse if you have an issue, right? Another big piece of it is, build smaller warehouses away from each other so that you can do what you want to do in a smaller situation. Make sure they're at least so many feet apart, so you don't expose one building to another, and try to do it in a few warehouses versus one huge, massive warehouse. Again, we might lose a little bit of efficiency, but you're going to pick up, you're going to gain that in “sleep insurance,” that hey, whenever something does happen, you're not going to lose everything. I mean those are a couple of things they can do to really help mitigate some of these very severe fire exposures.

HILGEN: Now Joffre, I've heard of warehouses that use like low oxygen environments to reduce the chance that a fire would break out because they're essentially robots doing all the picking of products. Have you experienced any of that?

MISHALL: Yeah, we definitely look at that. It's something that's still being developed. It's something that we think is promising. Some of these computer areas, if you remember back in the computer storage data used halon. They can't use halon anymore, but they use another more environment friendly gas to basically saturate the area so that there's no oxygen for the fire to grow. That same technology is being applied to these warehouses. But again, the warehouses are so massive, those systems are pretty large to be able to do something like that, right? So again, a smaller warehouse would help make that more viable, right? But that's definitely something … how do we break the triangle of fire if you got your fuel, got your oxygen, got your heat? How do you break one of those triangle sides to stop the fire? And one of them is to eliminate the oxygen.

HILGEN: Interesting. Finally, how does all this increased fire risk affect business's ability to obtain insurance coverage, or what is known in the insurance industry as insurance capacity?

MISHALL: Yeah, I think the challenge we have as an insurance company is, alright, what kind of warehousing facilities do we have? You look at your manufacturing, they have warehouses, right? You look at retail, they have warehouses. Now you look at healthcare because they have warehouses because they're distributing pharmacies, right? So, we're seeing a lot of warehouses all over. So, one of the things that we need to consider is, how big do we anticipate that fire to get? If it reaches a certain “probable maximum loss”, [as] we call it, what do we think would really happen if we think that number gets to a point where we just can't handle a capacity load that high. We'll work with our distribution partners and try to build a panel of insurers to help us do it in a large amount. Getting capacity added up with a large amount of us [insurers], sometimes that's not even enough, right?

HILGEN: Yeah.

MISHALL: The insured might have to take some retention on themselves because these numbers are just getting so big that it's just hard for us to handle. As the insurance company, even when we go into the reinsurance area, we're still finding it hard to find capacity to fill these very large storage facilities. So again, another area of cost that could be saved if they did have alternative ways to build these warehouses.

HILGEN: Yeah, that makes sense. Well, Joffre, I want to thank you for being our guest and sharing your insights about warehouse fire risk on the podcast.

MISHALL: I appreciate you having me. This is a huge trend. You know, we've been looking at this for several years now and we know that things are getting more advanced. We actually work with our insurers to say, “Hey, what else can we do to help you protect what you have?” So, we're constantly working with our customers who have these warehouses to find better ways to store and protect. So, we will continue to do that and one of the big things you can do is just contact your carrier when you're building these types of structures to get the best information you can and best advice on how to do so.

HILGEN: Excellent. Thank you. This has been Future of Risk presented by Zurich North America.

OUTRO: Future of Risk, presented by Zurich North America. If you like the show, we’d appreciate it if you left a comment or review wherever you get your favorite podcasts. Let us know what you think at media@zurichna.com and join us next week.