Arson: No smoke without fire

A lighter with a flame on a black background

While fire risk has dropped considerably over the past decade, almost half the £1bn paid out in fire claims each year is as a result of deliberate acts. So what can be done to reduce the losses caused by arson?

A 64% reduction in fires over the last 10 years means arson is no longer the insurance industry’s hottest topic. However, with deliberate fires accounting for around 46% of the annual £1bn paid out each year for fire claims, many are arguing it should be more of a burning issue for insurers.

A variety of factors have helped reduce fire risk. These include education campaigns such as the government’s Fire Kills, the distribution of smoke detectors and changes in regulation to make furniture more fire-resistant, more fire-resilient new builds and the banning of smoking in many properties.

“There has been a lot done by the fire service on the education front,” says Jonathan Salter, director of global consulting at RSA. “This has really helped reduce the number of fires, especially on the domestic side.”

Arson targets
While this may have lowered the amount of fires, a significant number of deliberate fires still take place. For example, the government’s Fire Statistics Monitor shows that although there’s been a 76% reduction in deliberate fires since 2003/04, there were still 77,500 incidents in 2013/14 – with 64 fatalities.

Although domestic properties are not immune to arson, the commercial and public sectors tend to suffer particularly large losses as a result of these attacks, and some types of business come under attack more than others. Figures from the Fire Protection Association for the five-year period to 2012 show the retail sector suffered the highest number of deliberate fires – 59 – over this time, with an average cost of £833,102 per incident.

Douglas Barnett, head of customer risk management at Axa, isn’t overly surprised. “Small shops are always targeted,” he says. “There can often be a secluded area at the back of the premises and with police cutbacks leading to fewer patrols, an arsonist is unlikely to be discovered. On top of this, the shift from weekly to two-weekly waste collection and the push for more recycling means there can be plenty of combustibles around.”

Medical facilities also stand out in the FPA statistics. Unlike the retail sector, there are relatively few attacks, with just five taking place over the reporting period – but they have the highest average cost at £2,122,000.

Major expense
While these areas stand out in the statistics, Mike Crane, commercial lines director at LV Broker, says all premises are potential targets. “Some are particularly vulnerable such as schools, unoccupied buildings, places of worship, abattoirs and animal research establishments,” he adds. “Arson-related claims have been increasing in frequency and, over the last three years, LV has seen average claims costs increase too.”

Claims for arson also tend to be more expensive than for an accidental fire. This is partly because most attacks tend to happen at night – out of sight and often with additional fuel to accelerate the spread of the fire – so a greater amount of damage can occur. For example, Catherine Dixon, head of property and casualty at Allianz, says the average arson claim is about 50% more expensive than a non-arson fire claim.

The way the fire service deals with the situation can also help increase the size of losses. Professor Jim Lygate, chairman and principal investigator at IFIC Forensics, explains: “The fire service takes a much more defensive approach to fighting fires. If life isn’t at risk it won’t put its firefighters’ lives on the line to fight a property fire.”

Legal action taken against the fire service when firefighters have died has helped to cement this position. For example, following the death in 2009 of Edinburgh firefighter Ewan Williamson when he was trapped in a blaze in a property, Scottish Fire and Rescue Service admitted health and safety breaches this February.

Tackling arson
Given these numbers, both in terms of incidents and costs, the Arson Prevention Forum is calling for more action to tackle this problem. In its state of the nation report, Arson: a Call to Action, which was published last September, it called on the insurance industry to play a leading role in arson reduction interventions. “Insurers are losing a lot of money as a result of arson but, although people are saying the right things, we’re not really seeing enough activity,” says Lee Howell, APF chairman and chief fire officer at Devon & Somerset Fire & Rescue Service.

To turn this around, the report recommends a more directed approach to prevention. For the insurance industry this includes investing in prevention and commissioning research to better understand the risks and victim profiles; sharing good practice on arson reduction arrangements; and publishing statistics on the cost of arson separately from the fire claims statistics.

In addition, and in collaboration with other bodies, it would also like to see more work done to raise awareness of the consequences of arson. This could highlight the fact that arson attacks will be investigated and perpetrators will receive prison sentences and that anyone committing arson for financial gain could find themselves facing charges for insurance fraud.

“We’re not asking for a huge investment to fund initiatives,” adds Howell. “What’s required is greater visibility of the consequences to help deter potential arsonists. It’s more subtle.”

Low profile
The APF’s concern about arson’s low profile is not surprising. Although no one would say it wasn’t important, arson often gets lost in the terminology. Nick Young, partner at DAC Beachcroft and a member of the APF, explains: “The word ‘arson’ isn’t actually used when an attack is recorded, which helps it stay below the radar.”

For example, Fire and Rescue Service statistics record fires as primary for buildings, vehicles and outdoor structures, and secondary for everything else, with the cause detailed as either accidental, deliberate or unknown.

It’s also hidden in the police statistics, where arson is recorded as an offence of ‘destroying or damaging property’ under section one of the Criminal Damage Act 1971. Similarly, Home Office statistics lump incidents of criminal damage and arson together. Even the insurance industry keeps it general, using the umbrella term ‘fire claims’.

Recent claims patterns could also be behind some of the complacency. While tough economic times often result in a spike in fire claims, there was little evidence of this in the recent recession. “We’ve always suffered more arson claims when there’s a downturn in the economy as a result of business owners torching their own premises for the insurance pay-out, employees with a grudge taking it out on their employers or because there are more unoccupied buildings,” says Dixon. “This time, although we were waiting for it, it didn’t come through.”

Insurer response
But while the APF is calling for more collaboration to ensure tackling arson is given more attention, the insurance industry points out there are already a number of examples of insurers working together.

For example many support research scheme RISC Authority, which develops and promotes best practice to protect against loss.

Number crunching

170,000
Number of fires attended by fire and rescue authorities in England in 2013/14 (Fire Statistics Monitor, Department for Communities and Local Government)

77,500
Number of deliberate fires attended by fire and rescue authorities in England in 2013/14 (Fire Statistics Monitor, DCLG)

76%
Reduction in number of deliberate fires between 2003/04 and 2013/14 (Fire Statistics Monitor, DCLG)

£1.7bn
The economic cost of arson (The Economic Cost of Fires, estimates for 2008, DCLG)

£1bn
Fire-related claims paid each year (Association of British Insurers)

64
Deliberate fire deaths (Fire Statistics Monitor, DCLG)

 

Among its work in this area is the publication RC48 – Arson Prevention, which can be downloaded free from its website. “This details some key recommendations for businesses to protect against arson as well as including a useful checklist,” explains Cathy Taylor, head of commercial underwriting and operations at Ageas.

As well as material produced collaboratively, insurers also point to the work they do individually to help reduce the number of arson claims. “Arson is a big problem but the work we’ve done to tackle it has helped to reduce the level of claims we receive,” says Salter.

A variety of claims reduction strategies are in evidence. At Axa, arson is an important consideration in the surveys it runs with commercial customers. “We always do an arson assessment when we undertake a survey as there are lots of practical things a business can do to reduce the risk,” says Barnett. “A face-to-face inspection is the ideal way to communicate these prevention strategies. A shop owner isn’t necessarily going to read an email you send them on arson prevention.”

Risk management
Many of the steps businesses can take are common sense and will also help reduce the risk of losses from other events such as theft or vandalism. Risk control measures can include ensuring adequate security and lighting, removing combustible yard storage and waste, securing wheelie bins and installing fire detection and suppression devices such as CCTV, smoke detectors and sprinklers.

There are also incentives for putting these measures in place. Although insurers don’t tend to reward policyholders explicitly for improvements in arson risk, those who take the right steps will see savings. Dixon explains the approach at Allianz. “We look for quality indicators when we underwrite a risk. These help to reduce the risk of a variety of claims; including arson, and will be priced accordingly.”

Patterns can also help when dealing with arson risk. At RSA, every commercial client’s sites are benchmarked, taking into account the arson risk for the location and other relevant factors. This can then be analysed through its risk engineering database to help it identify sites at the highest risk. “Benchmarking sites in this way enables us to focus on the highest risk properties so the business owner can take appropriate steps to reduce the risk,” explains Salter.

As the risk of arson increases in unoccupied premises, insurers have also developed services to provide additional protection where a building becomes vacant. Axa offers its clients a service through a third party to provide a weekly inspection of any vacant properties. Barnett explains: “Many insurers will only specify the client checks an empty property once every four weeks but we found that, by having this service, there was a massive reduction in claims for arson and also metal theft.”

Clients pay for the inspection service, but in return Axa maintains the standard rate and level of cover. Barnett adds that he’s seen interest in the service from large corporates through to SMEs.

Dealing with fraud
As well as working with policyholders to prevent arson, insurers also focus on detecting fraudulent claims. “We’ll investigate any fire that looks suspicious,” explains Jeff Hosking, head of major damage claims at RSA.

“Within the first couple of weeks we’ll look at the nature of the fire and how it was started but also other details such as the business accounts, to see whether it could have been the owner. We want the message to be out there that if someone sets fire to their own premises, we’ll catch them.”

To support this deterrent, insurers have also successfully prosecuted policyholders who have made fraudulent fire claims. As an example Dixon says that following suspicions about a very large arson loss in 2012, the insurer worked with police to gather evidence to secure the policyholder’s conviction.

“By looking at when alarms were set and mobile phone data we were able to show he was at the premises when the fire was set,” she says. “He received a six year prison sentence but it was also good from a claims cost perspective as there was an estimate of a couple of million pounds on the loss.”

But, while insurers are proud of their strategies for tackling arson, with so much money still going up in smoke, a more coordinated response could certainly deliver bigger savings. “You just have to look at the cost of arson and the number of deaths,” says Howell. “More needs to be done.”

This article was published in the 19 March edition of Post magazine.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@postonline.co.uk or view our subscription options here: http://subscriptions.postonline.co.uk/subscribe

You are currently unable to copy this content. Please contact info@postonline.co.uk to find out more.

60 Seconds With... Foil’s Pete Allchorne

Pete Allchorne, partner at DAC Beachcroft and president of the Forum of Insurance Lawyers, would like to be “Doctorin’ the Tardis”, finds ironing therapeutic, and can be found dancing to “Uptown Funk” by Mark Ronson and Bruno Mars.

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here