Rating Fire Departments: The Policy Issues

Abstract

Fire protection represents one of the largest categories of local government expenditures. A major factor considered in making expenditure allocation decisions in this area is the fire insurance rating assigned to local jurisdictions by the industry-controlled Insurance Services Organization (ISO). Thus, local government expenditure policy in the area of fire protection is influenced largely by criteria beyond the control of public officials. The purpose of this article is to explain how such a situation developed and to discuss alternatives which could transfer the fire rate setting process to public policy makers. Costs associated with fires are high. Fire insurance premiums covering fire loss are sizable because fire losses are very costly. One study of fire losses estimated that in 1977 direct property losses from fire were $4.2 billion, and indirect losses from lives lost were an added $9.4 billion.' Another major fire-related expense is the cost of fire departments. In 1977, $4.4 billion were expended on fire service by local jurisdictions.' A community's fire rating classification is a key factor that directly affects both the cost of insurance and the cost of fire departments. Since 1916, fire departments have been periodically evaluated with respect to water supply, staffing, and equipment. This evaluation and the classification assigned to a local government is a factor affecting the amount of fire insurance paid. Because of this effect on insurance, local governments spend huge amounts trying to improve or maintain their classifications. Despite the obvious importance of fire rates, the fire rating process has been little understood by local government officials. Beginning in the 1960s, weaknesses in the rating process became more apparent to local government interest groups, and criticism mounted about the way fire defense systems are evaluated. This article explains why fire rating classifications are widely misunderstood and misused. Also discussed are various criticisms of the criteria and procedures used to evaluate fire defense systems, and whether local governments would be better served by having the state governments -rather than the private sector-rate fire departments.