The origin of the fire insurance grading system dates back more than 100 years to a time when major fires destroyed large portions of cities in Canada and the United States. Historical fires such as the Great Fire of Portland (1866), Great Chicago Fire (1871), Great Toronto Fire (1904) and the 1906 San Francisco Earthquake and subsequent fire focused attention on the vulnerability of cities to the threat of conflagrations. During this era, water supplies, fire departments and fire codes were in their infancy and were simply not sufficient to prevent or control large, devastating fires. Insured fire losses were staggering and posed a serious threat to the financial stability of the insurance industry.
Faced with this enormous problem, the National Board of Fire Underwriters in the United States assembled an engineering team to carry out a detailed study of the fire conditions in major cities. In Canada, the Canadian Fire Underwriters' Association carried out similar work. Under that program, engineers evaluated the fire potential of many cities.
The following quoted excerpt is from the “The Underwriters, the history of the Insurers’ Advisory Organization and its predecessors, the Canadian Fire Underwriters' Association and the Canadian Underwriters' Association,” by Christopher L. Hives, 1985.
"The high incidence of large fires in 19th century Canadian cities had the inevitable consequence of driving numerous fire insurance companies into bankruptcy. In an effort to lend some stability to the struggling industry, the new Canadian government passed the Insurance Company Act in 1868."
(complete text in PDF format)
In 1883, the newly formed Canadian Fire Underwriters' Association developed the first municipal fire insurance grading schedule used in Canada with five classes of towns, ranked according to their fire protection, as follows:
|B (or No.1)||with first class appliances and waterworks|
|C (or No.2)||with waterworks|
|D (or No.3)||with steamers but no waterworks|
|E (or No.4)||hand engines or no fire protection|
Over the century following the formation of the Canadian Fire Underwriters' Association, the process for evaluating and benchmarking fire risk and fire protection levels have become more detailed and more standardized through the creation and development of the Public Fire Protection Classification system which was largely influenced by the Fire Suppression Rating Schedule utilized in the United States by the Insurance Services Offices or ISO (formerly the National Board of Fire Underwriters).
As municipal planners and engineers have come to realize that insurers utilize the fire insurance grades of communities to set the property insurance rates; public fire protection and infrastructure is increasingly being developed in a standardized manner to ensure recognition for fire insurance grading purposes and maximize the cost benefits to property owners.
Since the inception of this first municipal fire insurance grading schedule; the Fire Insurance Grading Index and the Public Fire Protection Classification (PFPC) System have become an important part of the underwriting and rating process for Canadian insurers writing personal and commercial fire policies. The Fire Underwriters Survey Fire Insurance Grading Index is a direct descendent of the earlier grading systems. The PFPC program gives insurers credible data to help them develop premiums that fairly reflect the risk of loss in a particular location.