Vegas Hotel Fire: Could Have Caused Insured Losses of $75 Million

January 31, 2008

The fire that blazed through the top of the Monte Carlo Hotel in Las Vegas could have been far more damaging had it started elsewhere in the building and not been contained so quickly, according to expert analysis by Risk Management Solutions (RMS). This event is one of thousands of possible fire scenarios; examining the risk of a fire starting in a guest room rather than the roof in a hotel of similar size and layout to the Monte Carlo when fire sprinklers’ effectiveness is impaired shows losses could have reached $75 million.

“Our risk modeling reveals that an event of this loss magnitude has an annual return period of 600 years,” said Dr. Ajay Singhal, vice president at RMS. “The extent of fire losses heavily depends on the mitigation measures in place. Through detailed analysis, we can calculate the impact of suppression systems like sprinklers as well as fire department response and control times.”

While the blaze was quickly controlled by the local fire department, the scene was reminiscent of the 1980 fire at the MGM Grand Hotel in Las Vegas, which was the second most deadly hotel fire in U.S. history. “Situations like this are a vivid reminder of the potential for low-probability, large-loss events within the realm of fire risk underwriting,” said Mark Rascio, product manager for the RMS fire model. “Popular tourist hotels are particularly susceptible to high business interruption costs caused by fire, as well as building and content losses.”

RMS will shortly be launching its new Account Fire Model, which provides metrics for risk managers responsible for properties commonly underwritten by U.S. commercial insurers.

Source: RMS.

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