Insurance Act 2015 on the statute books today! February 2015
The Insurance Act 2015 received royal assent today…
Published 1 September 2015
Arson kills, but it also costs society billions each year through property damage and emergency response. Despite the high toll, preventing arson is currently not a priority for the government, emergency services or insurers, who shoulder much of the cost. That could be about to change.
A push by the Arson Prevention Forum (APF) to put arson prevention back on the agenda is gaining traction, presenting the insurance industry with an opportunity to join, and potentially shape, a concerted effort to drive down the cost of arson. Increased co-operation between key stakeholders, better data and greater levels of investment are required. Crucially, the issue needs leadership.
The insurance industry’s participation is seen as critical to any future success, and the engagement and commitment of insurers at a senior executive level is now desperately needed.
Specific statistics on the cost of arson are non-existent – which is one of the issues hampering action on loss prevention – but a rough estimate puts the annual cost of arson in England at about £1.7 billion, or £4.7 million per day.
The trend in fire statistics overall has been positive. Deliberate fires attended by the fire services in England reduced by 76% over a ten-year period ending in 2013, according to the latest fire statistics monitor.
Despite the decrease in the number of fires, there was an upward trend in both the number of fire-related insurance claims and the cost of claims between 2004 and 2012, according to the Association of British Insurers (ABI).
Its members continue to pay out over £1 billion in property damage fire claims every year, suggesting that UK insurers face something like a £500 million bill for arson annually. For insurers, arson is one of those predictable grey swan events where a renewed effort to improve resilience in order to reduce losses is needed.
With current economic conditions and the squeeze on public sector spending, arson prevention appears to have become a lower priority for government and emergency services, according to Lee Howell, Independent Chairman of the APF and Chief Fire Officer for Devon and Somerset.
“Current efforts to combat arson could potentially be weakened as a result, which would have a negative impact on insurers,” Howell says. “It is in everyone’s interest to tackle this issue. Arson is a huge expense for the public sector and insurers alike.
"As a key stakeholder in any renewed effort to combat arson, the insurance industry has been surprisingly silent and often merely reactionary."
One of the biggest barriers to creating a national strategy for arson is the lack of comprehensive arson statistics, due to different definitions of arson and a lack of co-ordination between stakeholders. The police and the Home Office do not record specific arson statistics, while the fire and rescue statistics only record fires as deliberate, accidental or unknown. So, while the fire services record the theft and setting alight of a vehicle as arson, the police classify it as theft.
The insurance industry also does not record arson claims in detail. Industry fire claims statistics do not distinguish between causes of fire claims, instead they are based on fire brigade notifications, which only identify ‘deliberate’ fires, rather than arson.
“There is an underlying problem of lack of common data sets. There is no common picture and without accurate industry data the scale of the problem remains hidden for insurers,” says Howell. The ABI has a fundamental role in co-ordinating the insurance industry’s approach to arson, he adds.
There is a clear need for insurers to improve data on arson to inform loss prevention strategies, according to former Law Commissioner, David Hertzell. “Data is not even at first base in terms of defining arson and related fraud, and it seems sensible to start logging it,” he says.
One positive sign is that the Arson Prevention Forum is due to sign an information-sharing agreement with the Insurance Fraud Bureau to map fraud data.
Against this backdrop, the APF published a major report on the state of arson in the UK in September 2014. Billed as a ‘call to action’, the report made a series of recommendations to the government, the emergency services and insurers. Its principal message is that there is no national strategy to tackle arson. In particular, there is no joined-up thinking or co-operation among key stakeholders on fire prevention, while investment is pitiful across the board.
One of the big problems is that arson suffers from a lack of ownership. The fire brigade puts the fires out, insurers pay the bills, and the police and Crown Prosecution Service try to catch and prosecute the culprits. It is no one organisation’s sole problem and little is happening to understand and learn from what is happening in each silo. As a key stakeholder in any renewed effort to combat arson, the insurance industry has been surprisingly silent and often merely reactionary. The industry led the debate on insurance fraud, but it is not visible when it comes to the problem of arson.
The insurance industry also spends very little on arson loss prevention in comparison with the cost of deliberate fire claims. Insurers spend some £200 million per year (15%) to identify £1.3 billion of insurance fraud, but it does not invest anywhere near the same proportion to prevent half a billion pounds in arson claims. As arson gives rise to loss of life and costs society and the insurance industry dearly, many may ask: Why is so little being invested in prevention?
Arson is clearly not getting the attention it deserves, in government and within the insurance industry. The problem, it would appear, largely comes down to a lack of both leadership and ownership – whose problem is it anyway? The government expects the insurance industry, which would benefit from any reduction in claims, to take a lead. Individual insurers have not made arson a priority and, until they do, the ABI is unlikely to swing into action.
“I have been surprised that arson is not a bigger issue for the insurance industry,” says Howell. “The cost of arson is significant so why wouldn’t insurers want to take action? Some insurers – notably AXA and Zurich Insurance – are proactive in this area and are engaging with the APF.
“But we need the engagement of senior management, which should bring about a much needed industry response led by the ABI.”
In much the same way as they did with insurance fraud, the insurance industry could take a leading role in helping society deal with arson, supporting research and behavioural and psychological profiling of the perpetrators of arson.
There are many links between insurance fraud and arson, according to David Hertzell, a former Law Commissioner who now leads the government’s taskforce to consider insurance fraud. “Fraud does not respect boundaries,” he says, noting that fraud, whether it is in the form of arson, insurance fraud or benefit fraud, is socially corrosive and adds to the cost of living.
“The taskforce has been given an open remit and while personal injury, and whiplash claims in particular have been the main cause of concern, arson also has its place. We are conscious that personal injury fraud should not dominate the work of the taskforce. The Insurance Fraud Taskforce welcomes input on arson and it is the intention to include arson in my final report.”
Insurers pay the bill for arson, so it makes perfect sense for them to talk to those fighting deliberate fires and prosecuting perpetrators, but there needs to be far greater engagement by individual insurers and the ABI on arson if this is to happen. The key will be re-establishing arson as an important topic at the C-suite level and focusing on the huge potential there is for reducing costs by tackling arson.
Currently there is no formal network linking the emergency services – they fall under different government departments – which makes a co-ordinated response to arson challenging. However, in the current political and economic environment, government agencies are being encouraged to seek efficiencies and share services. This is already happening in some cities and counties with police and fire services, and the current government is likely to encourage this further as the downward pressure on public spending increases.
If the emergency services are successfully integrated, and potentially brought under a single government department, this would open up an opportunity finally to achieve closer cross-agency co-operation on arson. This would have tangible benefits for combatting arson.
The ABI is keen to collaborate in order to reduce arson and notes that insurers already play a vital role in loss prevention. “Arson has for many years been a high-profile concern and we recognise the need to tackle the needless damage and disruption that deliberate fires can cause to homes and businesses,” says Mark Shepherd, ABI Manager for General Insurance. “We work closely with the Arson Prevention Forum, including contributing to their Call to Action report, and we welcome any collaborative work that could help to reduce the number of arson cases.”
The insurance industry produces a wealth of research, guidance and advice to help prevent arson in a range of sectors, according to the ABI. “The industry plays a leading role to help their customers manage their arson risk and will continue to use their experience in these sectors to reduce the number of deliberate fires,” says Shepherd.
Following the call to action by the APF, momentum has been gathering, according to Howell. The body presented its recommendations to the All-Party Parliamentary Group on Insurance & Financial Services at the end of January and won the support of Jonathan Evans MP, chairman of the group up until the election.
The Arson Prevention Forum (APF) (formerly the Arson Prevention Bureau) is the principal industry body responsible for raising awareness and reducing the risk of arson at a national level. It was formed in 1991, but was reinvigorated in 2001 with £2.25 million in public funding and tasked by the government to reduce the number of deliberate fire claims by 10% over a ten-year period. It actually helped reduce fire claims by 30%.
Today it receives no direct government funding. Its strategic funding partners are the Association of Chief Police Officers, the Chief Fire Officers Association and the Association of British Insurers. “The APF has an enabling and facilitating role in the fight against arson. We should be seen as a supportive partner by insurers, shining the light on issues and helping to provide solutions,” says Lee Howell, Independent Chairman of the APF and Chief Fire Officer for Devon and Somerset.
With the support of Evans, the government and emergency services are now engaging with the APF. “There has been a groundswell of progress being made,” says Howell. “We now have the engagement of the Crown Prosecution Service and Home Office, while the Fire and Rescue Service recognises that it needs to do more. The ABI is now looking to work actively with us to move the agenda forward.
“We have been pushing for the government to take a leadership and strategic role and there is cause to be hopeful that there will be greater emphasis on co-operation as a way to bring down the cost of dealing with arson and reduce risk to society. If we do nothing, the cost of arson will continue to climb at a time when money is tight for the public sector and the insurance industry.”
Thanks to the work of the APF there has been renewed interest in arson and growing dialogue. However, the government will not solve this problem for insurers, neither will it provide additional public money.
Arson prevention is now about raising awareness of the issues, about co-ordination, ownership and leadership. People in the industry need to care enough. Fire kills and has huge consequence in terms of cost.