Ed Noonan

Better training a key to snuffing out arson

By Ed Noonan, chairman and CEO, American Re-Insurance Company

In January 1996, Joe Logan, a maintenance worker at the Howard Johnson Hotel in Bowling Green, Ky., set fire to the hotel, killing four guests. This is something Logan’s employer, Suresh Kumar, hadn’t counted on when he paid Logan to set the blaze. He simply wanted the insurance money.

Mr. Kumar’s hotel had recently been given one of the lowest quality assurance scores in the chain’s history, and it would require $400,000 in renovations. Interestingly, Kumar had filed six claims for fire damage at another hotel he owned in Nashville, Tennessee during the previous year.

In the ensuing investigation by local fire officials and the federal Bureau of Alcohol, Tobacco and Firearms, Mr. Logan confessed to the crime and implicated Kumar. Both are now serving life terms in prison.

According to the National Fire Protection Association, arsonists are believed to set 500,000 fires in the United States each year. Unfortunately, the majority are never arrested, and only 2 % of investigations result in a conviction.

And according to a study by the Law Enforcement Assistance Administration (LEAA), 14 % of arsons are estimated to be arson-for-profit. Applied to current statistics, that’s 70,000 fires.

Bottom line? The typical arsonist is more likely to get an insurance check than a prison sentence.

As an industry, we should be deeply troubled by this. According to the NFPA and LEAA, Americans spend $2 billion each year on arson. Here’s where the money goes: $280 million to pay criminals in arson-for-profit schemes; $460 million to clean up after revenge incidents; $140 million for fires set to cover up other crimes; $280 million for fires set by the mentally ill; $840 million for fires set by vandals, many of them adolescents.

If every incident of arson could be proven, this crime would be the major cause of property damage due to fire in the United States. And the problem doesn’t end there.

Each year in the United States, fire kills 4,000 people, injures another 20,000-25,000, and destroys approximately $8 billion worth of property. In fact, the U.S. currently has one of the highest fire death rates in the world—about 25 % higher than Canada, more than a third higher than the United Kingdom, and almost 250 % higher than Switzerland.

One of the fundamental reasons for these statistics, I believe, is that we have failed to educate the public about fire-related risks. For example, a popular building style in the U.S. today features homes with soaring two-story foyers. While this design is architecturally imposing, fire experts describe houses built in this style as very efficient chimneys—in a fire, smoke rises easily to the second story where it can silently choke a family to death in just minutes.

But there’s another problem.

Approximately 2 million fires are reported annually in the U.S. According to NFPA, the cause of roughly a third of those is recorded as "undetermined."

Why? Fire investigation is a very complex process. Many fire investigators do not have adequate training opportunities to develop the skills required to solve these cases. And those who do get training often don’t have the opportunity to work enough fire scenes to maintain the skills they were taught.

To be effective, fire investigators must learn not only how to recognize, collect and preserve evidence from the charred remains of a fire, they must also be proficient in a host of additional skills, such as interviewing witnesses, case management, and testifying in court.

What can the insurance industry do? Our industry has an obligation to lead this crusade.

Obviously, developing better ways to select and manage risk is important to us, but we have the opportunity here to do something that will reach beyond our bottom line. Helping fire investigators develop the specialized skills necessary to better identify the causes of fire will touch communities all across the country. I think we have a responsibility to help make our communities a safer place to live and work.

American Re-Insurance Co. is part of a national initiative to improve the fire investigation skills of the nation’s firefighters, police and prosecutors, as well as the insurance industry.

We’ve partnered with the Bureau of Alcohol, Tobacco and Firearms (ATF), the National Fire Protection Association (NFPA) and the U.S. Fire Administration (USFA) to produce an interactive CD-ROM-based training program called interFIRE VR .

With interFIRE VR , users can explore an actual fire scene on a search for evidence, listen to the advice of top U.S. fire investigators or, via a resource file, see Internet links to various insurance industry databases to track insurance claims for fire loss.

This partnership has allowed each organization to specify its own "best practices" and to share information across disciplines. The benefits are significant. Some examples:

	Firefighters will learn that, in addition to saving lives and property, they may also be entering the scene of a crime. Evidence about how a fire started can be either destroyed or preserved depending upon their actions.
	Law enforcement officials will discover the wealth of information contained in the insurers’ underwriting and claim files. This information is available through existing immunity legislation in all 50 states. Investigators simply need to know how to ask for it.

Will a partnership approach like this make a difference? We think so. That’s why the interFIRE VR developers have decided to distribute as many free copies as possible to their respective audiences. For American Re, that includes our competitors in the insurance industry. This is an issue that rises above mere competitive considerations.

Beyond that, the program is available via the Internet or through a toll-free phone line (877) INTERFIRE (877-468-3734), to anyone with a professional interest in fire investigation. A nominal shipping and handling fee will apply to these orders.

Of those fires classified as "undetermined" in origin, many are caused by arson, though some will surely turn out to be from less sinister causes such as cooking, heating and appliances. (Believe it or not, the plastic housings of crockpots and similar appliances are combustible.)

Whatever the cause, when more fires are solved, more fires will be prevented, more arsonists will be caught, and more lives saved.

What can insurers do? Well, it should go without saying that you should support fire and police departments in the communities where you work. Let local officials know that you favor aggressive prosecution of arsonists.

But insurers must also walk the walk. Here are a few ways to do that:

	Participate in the fight. To combat arson, insurers have created the Insurance Committee for Arson Control (ICAC), which serves as a national resource, education and communications organization. ICAC sponsors and coordinates the activities of the National Arson Forum, a gathering of leaders from the public and private sectors to exchange information and develop new resources to aid all participants in the arson battle. Another group is the National Insurance Crime Bureau (NICB) which provides training to insurance claims personnel and investigates questionable insurance claims, including suspected arson. Make sure your company supports such efforts.
	Share information. Does your company file its property claims with ISO ClaimSearch, which was formerly known as the PILR database? Of the 60-70,000 reports that PILR received each month, about 14% are flagged as suspect, thereby increasing dramatically the chance that an arsonist will be caught.
	Create a Special Investigation Unit (SIU). Rather than simply pass losses on to policyholders, many insurers have set up SIUs to investigate suspicious fires and collect evidence that can be forwarded to officials for prosecution. The results of setting up an SIU may vary, but on average, they save $10 for every dollar invested, according to the International Association of Special Investigation Units. With that sort of return, continuing to do nothing is not an acceptable choice.
	Put teeth in your state’s fraud bureau. Most states have fraud bureaus, but not all require insurers to forward suspicious claims to their state's fraud bureau. If your state doesn’t, urge your state legislators to change the law.
	Make insurance fraud a crime. Insurance fraud is illegal in all states, but some laws are more effective than others. Prosecuting insurance fraud is easier in states where it is identified as a specific crime in the penal code and where the elements that constitute insurance fraud are defined, along with the penalties that can be imposed. Otherwise, it falls under general fraud provisions such as fraud by deception. Again, talk to your legislators.

In the five minutes it took to read this article, arsonists set five new fires, starting almost 1,400 each day. That’s five arsonists who should go to jail but probably won’t. That is countless businesses and lives destroyed. And that is too high a price for our society and our industry.

Business Insurance magazine / 20 Sept., 1999

Mark E. Dixon

757 Upper Gulph Road

Wayne, PA 19087-2022

USA

610-971-0649

dixon_mark@verizon.net