Automatic Fire Suppression System installations - traditional building conversion to hotels: cost benefit analysis

5. Analysis of Benefits

5.1 Introduction

5.1.1 This section considers the estimates of the value of benefits from installing AFSS into traditional buildings when being converted to hotels. The benefits which are likely to arise are essentially “avoided costs” and are considered under the following headings:

• Injury and fatality costs.
• Damage to property.
• Fire response costs.
• Environmental costs.
• Other costs.

5.1.2 The remainder of this section sets out how the estimates of benefits are derived and concludes with an estimate of the annual benefit of installing AFSS.

5.2 The Prevalence of Fire, Fatalities and Casualties

5.2.1 Table 3.7 sets out the annual average number of fires in hotels in traditional buildings with the annual average number of casualties shown in Table 3.8. Prevalence is calculated as the number of fires, fatalities and casualties per 1,000 hotels (traditional and total) and is shown in Table 5.1.

5.2.2 The average rate of all hotel fires per 1,000 buildings is 35.1 and the rate of traditional hotel fires is 30.7. Data published by the Home Office found that the average rate of fires per 1,000 buildings for the combined years end September 2012 to September 2018 for hotels was 27. While the time periods are slightly different, there appears to be a higher incidence of hotel fires (in total and in traditional buildings) in Scotland compared to England.

5.2.3 The average rate of fatalities and casualties per 1,000 hotels in traditional buildings is 0.4 and 1.4 respectively. For the hotel sector in total, the rate of fatalities and casualties per 1,000 buildings is 0.3 and 1.4.

5.3 The Value of Preventing a Fatality or Casualty

5.3.1 The recent Home Office report adopts a different approach to estimating the cost of fatalities and injuries (both physical and emotional harms) to previous studies on the economic cost of fire^[11] undertaken by the Department for Communities and Local Government (DCLG) and other cost benefit studies discussed in Section 4.2. While the DCLG and other work has adopted the value of preventing a fatality or casualty, the Home Office report adopts a quality adjusted life year (QALY) approach to monetise fatalities and injuries.

5.3.2 A QALY is the value^[12] to an individual of being at full health for one year and is used in evaluation (particularly in health) although it has also been used in recent Home Office reports on the economic and social costs of crime. The value of a prevented fatality is used to value small changes in fatality risks where levels of human safety vary between options. This measure has been widely used for many years, particularly in transport.

5.3.3 These different measures provide flexibility and the specific choice depends on the nature of the intervention being appraised. This project (in line with previous cost benefit studies) will adopt the value of a prevented fatality as it is considered more appropriate for the current research i.e. considering the safety aspects of the two options.

5.3.4 The latest data available from the Department for Transport (2023 prices) are:

• The average value of preventing a fatal casualty is £2.574 million.
• The average value of preventing a serious casualty is £0.287 million.
• The average value of preventing a slight casualty is £0.022 million.

5.3.5 The severity of injury (Table 3.8) shows that casualties can be taken to hospital for both serious and slight injuries or receive first aid at the scene. Over the last eleven years:

i. 3.3% of non-fatal casualties in all hotel/motel fires and 0% of non-fatal casualties in hotel fires in traditional buildings were taken to hospital with serious injuries.

ii. 33.3% of non-fatal casualties in hotel/motel fires and 36.4% of non-fatal casualties in hotel fires in traditional buildings were taken to hospital with slight injuries.

iii. 63.3% of non-fatal casualties in hotel/motel fires and 63.6% of non-fatal casualties received first aid at the scene.

5.3.6 The casualties in (i) above are classified as serious and the average value of preventing a fatal casualty will be £0.287 million. Those in categories (ii) and (iii) are classified as slight and the average value of preventing a slight casualty is £0.020 million.

5.4 The Value of Property Damage

5.4.1 Previous cost benefit studies identified a number of estimates of property damage per building fire which have been updated to 2023 prices. The estimates were:

• £12,300 for domestic properties.
• £47,000 for commercial properties.

5.4.2 Table 4.2 shows that average property damage for other buildings was £104,600 (in 2020 prices). This is a substantial cost and considerably higher than the previous estimates which were derived from relatively old studies. The cost includes the cost of rebuilding damaged property and wider costs relating to loss of contents and stock, business interruption and loss of machinery.

5.4.3 The Home Office report uses the average area of damage from the incident database and the rebuild cost per m² from the building cost index to calculate direct property damage. The calculation of direct damage costs assumes that smoke and water damage incurs a lower rebuild cost^[13]. There is also an allowance for wider impacts including damage to contents and business disruption^[14].

5.4.4 Using the average areas of damage shown in Table 3.9 and average construction costs for a mid-range hotel^[15] yields the estimates of total property damage shown in Table 5.2. For traditional hotels, the total property damage cost is £117,500. This is lower than the estimate for all hotels and reflects the lower average areas of damage shown in Table 3.9.

5.4.5 The costs for both traditional hotels and all hotels are higher than those in Table 4.2 for other buildings, although the Table 4.2 costs relate to March 2020 and there has been considerable increases in construction costs between 2020 and 2023.

Note: columns may not sum due to rounding

5.5 Fire Response Costs

5.5.1 The cost of the SFRS responding to a fire include the direct labour cost of firefighters and control room staff and the non-labour costs of attending the incident e.g. vehicle costs, fuel etc.

5.5.2 To reflect the potential response costs of the fire and rescue service in the analysis, the unit cost for responding to a fire in other buildings in the Home Office report of £1,640 (2020 prices) is adopted. Allowing for inflation between 2020 and 2023 yields a 2023 cost of £1,840.

5.5.3 Table 3.10 showed that, on average, three appliances attend an incident. If the fire response cost is £1,840, this is assumed to cover three appliances such that the average cost per appliance is estimated as £610.

5.6 Environmental Costs

5.6.1 One of the cost benefit studies reviewed in Section 4.2 considered environmental costs (e.g. reduced greenhouse gas emissions), but the monetised benefit was found to be very small compared to other benefits. The value of environmental benefits was estimated in the recent Home Office report to be £500 for other buildings including carbon emissions and air quality impacts (Table 4.2).

5.6.2 There is no specific information on the level of greenhouse gas emissions from hotel fires or the effectiveness of AFSS in reducing greenhouse gas emissions. Hence, this benefit will not be monetised in the analysis, but it will be noted in a qualitative assessment.

5.7 Other Costs

5.7.1 Insurance costs are also excluded as they could give rise to an element of double counting. For example, the cost savings arising from reduced damage to property are included and the change in insurance premiums would also be measuring these costs.

5.8 The Effectiveness of Sprinklers

5.81 The analysis of the data for hotel/motel fires in Scotland in Section 3 did not provide sufficient information on which to form assumptions. Hence from the review of studies in Section 4.4, it is proposed to adopt the following assumptions for the effectiveness of sprinkler systems in preventing deaths, injuries and damage:

• Deaths – 95%.
• Injuries – 60%.
• Damage – 85%.

5.9 Estimates of Benefits

5.9.1 To derive an estimate of the benefit of preventing a fatality, the number of fatalities per building is multiplied by the value of preventing a fatality. The result is then multiplied by the effectiveness of sprinklers in preventing deaths to yield the estimated benefit of a prevented death as a result of the sprinkler system.

5.9.2 This process is repeated for serious injuries, slight injuries and property damage with the value of the benefits of preventing deaths, injuries and damage shown in Table 5.4. The results are shown for hotels fires in traditional buildings, non-traditional buildings and all hotel fires.

5.9.3 The Table also shows the benefit for fire response costs from sprinkler systems. As there is no information available on the effectiveness of sprinkler systems in reducing fire response costs, it is assumed that the average number of appliances attending an incident is reduced from three to two if a sprinkler system is installed.

5.9.4 As there have been no serious injuries from hotel fires in traditional buildings in the last eleven years, there is no benefit associated with a reduction in serious injuries for hotels in traditional buildings. The benefits are dominated by the property damage benefits.