arson threats

ISSUES UPDATES



Arson
THE TOPIC

DECEMBER 2008

Arson, the act of deliberately setting fire to a building, car or other property for fraudulent or malicious purposes, is a crime in all states. Insurers have an interest in preventing and detecting arson because such fires cause needless loss of life and property and also push up the cost of insurance for homeowners, vehicle owners and owners of commercial buildings.

Great strides have been made in fighting arson over the past two decades. Church arson is classified as a federal crime and a coalition of federal agencies are allied against church arson. More firefighters and police officers have basic training in arson detection. Insurers have set up a computerized database of property claims to help identify suspicious fires and insurance companies have special units to investigate suspected arson. State laws now allow a free exchange of information between insurers and law enforcement agencies, eliminating the threat of civil suits for libel or violation of privacy. New computer modeling programs enable fire investigators to better understand the dynamics of arson fires.


KEY STATISTICS


Arsonists set fires that destroyed $878 million worth of property in 2007, down 1.2 percent from $889 million in 2006. These fires include factories, residential buildings, churches and motor vehicles, according to the National Fire Protection Association (NFPA).


The number of civilians killed in arson fires in buildings in 2007 totaled 295, down 3.3 percent from 2006. Only 18 percent of cases were cleared (closing a case either by arrest or by exceptional means) in 2007.


Vandalism is the leading cause of arson. An Insurance Research Council study indicates that only 14 percent of arson suspects are motivated by a desire to defraud an insurance company, but other studies find the percentage is higher. Between 20 and 25 percent of arson fires are drug-related.


Children are responsible for almost half of the arson fires set in the United States.


National Fire Protection Association (NFPA) Data: According to the NFPA, in 2007 there were 32,500 intentionally set structure fires, up 4.8 percent from the prior year. In 1998 there were 46,500 such fires. Intentionally set fires in structures in 2007 accounted for 6 percent of all structure fires. These figures do not count suspicious fires.


In 2007, intentionally set structure fires cost $733 million in property damage, down 2.9 percent from $755 million in 2006. These fires killed 295 civilians.


There were 20,500 intentionally set vehicle fires in 2007, unchanged from 2006. These fires caused an estimated $145 million in property damage, compared with $134 million in 2006. Like structure fires, these statistics do not include suspicious fires.


FBI Data: According to the FBI’s Uniform Crime Reporting Program, law enforcement agencies in the United States reported 62,000 arson offenses in 2007, down 6.7 percent from 2006. Only the fires that investigators have determined to have been willfully set—not fires labeled as suspicious or of unknown origin—are included in the FBI report.


Arsons involving structures (residential, storage, public, etc.) accounted for 42.9 percent of the total number of arson offenses. Mobile property—composed of motor vehicles, trailers and the like—accounted for 27.9 percent of arsons. The rest were arsons of other types of property.


According to the FBI, the rate of arson was 24.7 offenses for every 100,000 inhabitants of the United States in 2007. Arson rates were highest in cities with populations of 250,000 or more, at 40.8 per 100,000 inhabitants. The arson rate for suburban areas was 18.8 per 100,000 inhabitants.


In 2007, the average loss value per arson offense was $17,289. For structures, arson damages were $32,364 on average and $7,890 for motor vehicles. Arsons of industrial and manufacturing structures resulted in the highest average dollar losses—an average of $114,699 per arson.


Arson in the nation's cities fell 6.3 percent in 2007 from 2006. The number of arson incidents in 2007 fell in the nation's largest cities, down 7.2 percent in cities with more than 250,000 inhabitants and down 1.8 percent in cities with 100,000 to 250,000 people. In metropolitan counties, arson offenses fell 8.8 percent from 2006 to 2007, faster than the 5.1 percent decline in nonmetropolitan counties. In suburban counties arson offenses fell 7.9 percent.


Arson has one of the lowest clearance rates of any major crime. The national rate in 2007 was 18.3 percent, cleared either by arrest or exceptional means. Motor vehicle clearances were lower in 2007, at 12.6 percent.


Clearances for juveniles (under the age of 18) were 39.6 percent—the highest percentage of all offense clearances involving only juveniles.



RECENT DEVELOPMENTS


Insurers have been watching to see if the subprime mortgage crisis will spur arson by homeowners facing foreclosure. Higher monthly mortgage payments when low introductory rates expire, falling home values, stricter lending practices that reduce the possibility of restructuring a loan or refinancing and the resulting increase in the national foreclosure rate may lead to an increase in homeowner arson. Presently there are no data to show an increase directly linked to foreclosures. In fact, the number of arson offenses reported for single occupancy residential structures fell 4.0 percent from 11,448 in 2006 to 10,995 in 2007.



INTENTIONALLY SET FIRES, 1998-2007 (1)

($ millions)



Structures
Vehicles

Year
Number of fires
Property loss
Number of fires
Property loss
1998 46,500 $816 NA NA
1999 43,500 828 NA NA
2000 45,500 792 NA NA
2001 45,500 34,453 (1) 39,500 $219
2002 44,500 919 41,000 222
2003 37,500 692 30,500 132
2004 36,500 714 36,000 165
2005 31,500 664 21,000 113
2006 31,100 755 20,500 134
2007 32,500 733 20,500 145
(1) Includes the events of September 11, 2001, which accounted for $33.44 billion in property losses.

NA=Data not available.

Source: National Fire Protection Association.



STRUCTURE FIRES IN RELIGIOUS AND FUNERAL PROPERTIES, 1980-2002 (1)






Direct property damage
($ millions)

Year
Fires
Civilian deaths
Civilian injuries
As reported
In 2002 dollars
1980 3,500 2 23 $62.1 $135.7
1985 3,020 0 30 60.5 101.0
1990 2,100 0 17 62.1 85.6
1995 1,890 5 62 52.1 61.5
1996 2,180 1 27 62.1 71.3
1997 1,950 0 25 43.6 48.9
1998 1,910 4 25 68.0 75.1
1999 2,000 3 26 100.8 108.8
2000 1,620 0 16 94.9 99.2
2001 1,750 0 24 85.2 86.6
2002 1,670 1 15 104.3 104.3
(1) Estimates of fires reported to U.S. municipal fire departments. Exclude fires reported only to Federal or state agencies or industrial fire brigades. National estimates are projections. Casualty and loss projections can be heavily influenced by one unusually serious fire.


Source: National Fire Protection Association.



INTENTIONAL STRUCTURE FIRES IN RELIGIOUS AND FUNERAL PROPERTIES, 1980-2002 (1)






Direct property damage
($ millions)

Year
Fires
Civilian deaths
Civilian injuries
As reported
In 2002 dollars
1980 1,320 2 5 $39.9 $87.1
1985 1,030 0 5 28.4 47.3
1990 640 0 2 21.4 29.5
1995 450 0 1 24.7 29.1
1996 570 1 3 19.5 22.4
1997 390 0 2 12.3 13.8
1998 380 0 7 25.5 28.1
1999 360 0 0 24.7 26.6
2000 320 0 0 6.7 7.0
2001 240 0 0 18.3 18.6
2002 240 0 0 28.6 28.6
(1) Intentional fires for 1980-1998 include fires coded as incendiary or suspicious and proportional share of fires in which the ignition factor was unknown or not reported. Estimates of fires reported to U.S. municipal fire departments. Exclude fires reported only to Federal or state agencies or industrial fire brigades. National estimates are projections. Casualty and loss projections can be heavily influenced by one unusually serious fire.


Source: National Fire Protection Association.



BACKGROUND

Anti-arson efforts represent one of the earliest organized activities of the insurance industry in America. The National Board of Fire Underwriters, one of the oldest business organizations in the country, was formed in 1866, partly in response to the problem of arson. In 1926 the Association of Casualty and Surety Companies was founded. One of its major divisions was a fraud bureau.

Insurers have an interest in preventing and detecting arson because the cost of arson claims pushes up costs to insurance buyers. Insurers will not pay a claim if a fire can be proved to have been deliberately set by a claimant or someone acting on his or her behalf in an attempt to defraud the insurer. However, many arson fires, such as those set by vandals or for revenge, are not fraud and result in legitimate claims. Another issue of concern to the industry is that even when arson fraud is proved, the insurer may still have an obligation to pay the mortgage holder the amount of the remaining payments on the outstanding mortgage.

Arson is less of problem that it was a few decades ago. In a 1982 study, the Insurance Research Council (IRC) found that, in residential fires reported by insurers, 11 percent of the fires were traced to arson. These fires accounted for 14 percent of the dollar amount of losses. For fires at commercial sites, arson was suspected in 27 percent of the fires, and they involved 37 percent of the dollar losses. The IRC studied reported fires in structures insured in the voluntary market only, i.e., not in Fair Access to Insurance Requirement (FAIR) plans or other property plans which make insurance more available to those who have difficulty obtaining it in certain states because of abnormal exposure to risks over which they have no control.

Motives for Arson: Most industry observers point to profit as the primary motive for setting fires, and have commented on the increased use of arson by organized crime and drug dealers. The IRC study found that the most frequent motive for arson in the voluntary market for residential insurance was vandalism. Fifty-three percent of the fires the IRC studied cited vandalism as the motive behind setting the fires. Fraud was the motive in 14 percent of the fires, followed by revenge, accounting for 12 percent of the fires, concealment of another crime, 6 percent, and pyromania, a mental illness, accounted for 3 percent of the fires. Twelve percent cited other factors.

Juveniles: Typical arsonists are surprisingly young. Nearly half of the people arrested for arson in 2005 were under the age of 18. Analysts note that the motive for arson among young firesetters is rarely profit, although young people are occasionally offered money to torch businesses. More than likely, young people commit arson out of a desire to vandalize property and for the thrill of seeing a building burn. These factors make fire claims more complex when arson is determined to be the cause of insured fire losses. Insurers must investigate further to establish whether the policyholder was involved in an attempt to burn down a business, or if a young thrill seeker was responsible for the fire.

Experts have found that fire setting begins at a very young age. In general there are two main types of children who start fires—2- to 7-year-olds, who do not understand the destructive nature of fire, and whose fascination leads them to "play" with fire, and 5- to 17-year-olds, who may start fires as a result of emotional or mental problems. To help promote programs that have been successful in preventing juvenile arson, the Institute for Social Analysis, a social science research group, examined state-of-the-art juvenile arson prevention programs nationwide under a grant provided in 1988 through the joint efforts of the U.S. Fire Administration and the Office of Juvenile Justice and Delinquency Prevention. They found that intervention programs can successfully combat juvenile arson and firesetting. However, the researchers also found that juvenile firesetting programs seldom have working relationships with law enforcement groups, prosecutors or the courts. Such relationships are necessary to ensure adequate tracking of all juvenile firesetters. Most programs report very low recidivism rates (less than 5 percent) and several report significant, often dramatic, reductions in the number of fires set by juveniles after the establishment of the juvenile firesetter program.

Arson Reporting Immunity: In 1984, South Carolina became the fiftieth state to pass an arson reporting immunity law. These laws enable insurers and authorized agencies such as law enforcement officials to exchange information freely without threat of civil suits for violation of privacy. By encouraging the exchange of information, arson reporting immunity laws increase the number of fraud arson claims denied and the number of arson arrests and convictions. Arson reporting immunity laws vary from state to state. Not all states will grant immunity to insurers and their representatives, along with authorized state and local agencies. Twenty states grant immunity to insurers and authorized agencies unless fraud, malice, lack of good faith or criminal conduct on the part of an insurer or representative is shown, according to an Insurance Committee for Arson Control compendium. All but three states mandate that insurers notify authorized agencies when they suspect arson. Twenty-eight states have penalties for failing to comply with mandatory arson reporting laws.

"Bad Faith" Lawsuits: An additional legal problem that insurers face in combating arson is "bad faith" lawsuits. Insurers are obliged to settle claims speedily. When a claim is denied because of arson, some claimants take the matter to court, suing insurers not only for the insurance money, but also for "bad faith" or punitive damages. Even when the insurer wins, these suits consume time and money.

Insurer Initiatives: As part of the insurance industry's continuing commitment to fight arson, the nation's property-casualty insurers embarked in 1978 on a broad-based campaign. A key element in their strategy was the establishment of the Insurance Committee for Arson Control (ICAC), which serves as a national resource, education and communications organization. Also involved in arson control is the National Insurance Crime Bureau (NICB). NICB provides training to insurance claims personnel and investigates questionable insurance claims, including suspected arson.

To gather evidence on claims that appear fraudulent many insurers have set up their own Special Investigation Units (SIUs). The majority of insurance companies formed SIUs or units with similar functions to investigate such claims, and most were using these units to investigate vehicular and homeowner arson. By the mid-1990s, insurers said that for every dollar they invested in all anti-fraud efforts, which included the use of SIUs, they were recovering $27. However, by the end of the decade, these returns became harder to achieve as the more apparent fraud was uncovered, and more effort was needed to ferret out the sophisticated fraud that remained.

Insurers have other basic methods of controlling arson. They can ask prospective insureds to fill out an investigative questionnaire, known as an anti-arson two-tier application, that may alert agents and underwriters to prior fire losses, tax liens against properties, fire-code violations and other indicators of danger ahead. It also can signal to the insured that the company is aware of these problems; that knowledge, in turn, may deter an arsonist. Another strategy is to ensure that the policyholder signs the application, thus giving the insurer grounds to deny a claim if false statements are made.

Once a policy is in force, indications that a property is likely to be an arson target may come to the attention of insurers. But in most states, insurers are unable to cancel a policy until it has been in force for one to three months, which gives the policyholder time to commit arson. Insurers are working to shorten notification requirements.

Insurers are also using computer modeling programs that show how different burning materials react with specific structures, enabling investigators to determine how fires were started. Some large companies have sophisticated laboratories that use state of the art technology to work with claims personnel and investigators to study fires. Another important development is the partnership between the Bureau of Alcohol, Tobacco and Firearms, the USFA, the NFPA and the American Re-Insurance Co. to develop a virtual reality training program using CD-ROMs to simulate fires. It enables the user to track his or her progress in investigating the fire and provides a tutorial if mistakes are made. The USFA also responded to a tragic Massachusetts fire by producing a new CD-ROM designed to train firefighters to respond more effectively to abandoned building fires, well-known as arson targets.

Federal Arson Law: The Arson Prevention Act of 1994 established a competitive grants program to be administered by the United States Fire Administration. Originally, the Act provided for 10 grants to be awarded to states or groups of states that develop programs relating to arson control and research. Examples of areas covered by these programs include improving arson investigative training leading to professional certification; providing resources for forming arson task forces that involve all appropriate local agencies such as the fire and police departments; combating and studying fraud, civil unrest, drug trafficking, and domestic violence as causes of arson; and combating juvenile arson by setting up counseling programs.

Church Arson: The National Church Arson Task Force, which includes FBI, Bureau of Alcohol, Tobacco and Firearms personnel, Justice Department and U.S. attorneys, the U.S. Marshals Service and state and local fire and police personnel, was formed in 1996 in response to a rash of fires at houses of worship, mostly in the South.

Also in 1996, the Church Arson Prevention Act was enacted, making destroying places of worship a federal crime and doubling the maximum penalty to 20 years, and at least 10 states have toughened penalties. In addition, the National Arson Prevention Initiative, a cooperative effort led by FEMA, and joined by the Departments of Justice and the Treasury, was formed. A coalition of Congressional representatives, insurers, and fire department officials announced prevention programs designed to combat church arson: a reward fund has been set up for information leading to the arrest and conviction of church arsonists; a toll-free insurance helpline for churches is in operation; and insurers offer a free on-site church inspection to identify and correct security and fire risks.

The National Fire Protection Association (NFPA) tracks the number of intentional fires in religious and funeral properties from data collected by the National Fire Incident Reporting System (NFIRS) from the U.S. Fire Administration of the Department of Homeland Security. The data include fires in structures such as churches, temples, mosques, religious education buildings and funeral and related properties that were reported to fire departments. The NFPA says that there were 240 intentional church fires in 2002, the latest data available, down from 390 in 1997. Older data show that the number of intentional church fires has been trending downward steadily from a high of 1,320 fires in 1980 and 1981. However, property damage amounted to $28.6 million in 2002, compared with $12.3 million in 1997.

The leading cause of church fires is arson, which accounts for about one out of every four reported church fires, according to the NFPA and the United States Fire Administration (USFA). Fire officials and insurers say that arson fires are relatively common at all types of houses of worship and that they are motivated by vandalism and revenge, along with efforts to conceal other crimes, such as burglaries. However, racial bias has long been known as a factor. A 1997 study by the USFA found that of the 230 church arsons investigated, 41 percent targeted black churches and 59 percent targeted white churches. Motives of the 100 people arrested in those fires included racial hatred, but juvenile vandalism, insurance fraud and thrill-seeking were also factors. Churches are also targets because they are unoccupied at night and for long periods of time during the day. Insurers advise churches to install good lights and burglar and fire alarms, use locks on all doors and windows, and trim shrubs and trees especially near windows and doors. They also suggest hiring security guards, organizing a church watch, and setting up arson hotlines and education programs.




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ISSUES UPDATES



Arson
THE TOPIC

DECEMBER 2008

Arson, the act of deliberately setting fire to a building, car or other property for fraudulent or malicious purposes, is a crime in all states. Insurers have an interest in preventing and detecting arson because such fires cause needless loss of life and property and also push up the cost of insurance for homeowners, vehicle owners and owners of commercial buildings.

Great strides have been made in fighting arson over the past two decades. Church arson is classified as a federal crime and a coalition of federal agencies are allied against church arson. More firefighters and police officers have basic training in arson detection. Insurers have set up a computerized database of property claims to help identify suspicious fires and insurance companies have special units to investigate suspected arson. State laws now allow a free exchange of information between insurers and law enforcement agencies, eliminating the threat of civil suits for libel or violation of privacy. New computer modeling programs enable fire investigators to better understand the dynamics of arson fires.


KEY STATISTICS


Arsonists set fires that destroyed $878 million worth of property in 2007, down 1.2 percent from $889 million in 2006. These fires include factories, residential buildings, churches and motor vehicles, according to the National Fire Protection Association (NFPA).


The number of civilians killed in arson fires in buildings in 2007 totaled 295, down 3.3 percent from 2006. Only 18 percent of cases were cleared (closing a case either by arrest or by exceptional means) in 2007.


Vandalism is the leading cause of arson. An Insurance Research Council study indicates that only 14 percent of arson suspects are motivated by a desire to defraud an insurance company, but other studies find the percentage is higher. Between 20 and 25 percent of arson fires are drug-related.


Children are responsible for almost half of the arson fires set in the United States.


National Fire Protection Association (NFPA) Data: According to the NFPA, in 2007 there were 32,500 intentionally set structure fires, up 4.8 percent from the prior year. In 1998 there were 46,500 such fires. Intentionally set fires in structures in 2007 accounted for 6 percent of all structure fires. These figures do not count suspicious fires.


In 2007, intentionally set structure fires cost $733 million in property damage, down 2.9 percent from $755 million in 2006. These fires killed 295 civilians.


There were 20,500 intentionally set vehicle fires in 2007, unchanged from 2006. These fires caused an estimated $145 million in property damage, compared with $134 million in 2006. Like structure fires, these statistics do not include suspicious fires.


FBI Data: According to the FBI’s Uniform Crime Reporting Program, law enforcement agencies in the United States reported 62,000 arson offenses in 2007, down 6.7 percent from 2006. Only the fires that investigators have determined to have been willfully set—not fires labeled as suspicious or of unknown origin—are included in the FBI report.


Arsons involving structures (residential, storage, public, etc.) accounted for 42.9 percent of the total number of arson offenses. Mobile property—composed of motor vehicles, trailers and the like—accounted for 27.9 percent of arsons. The rest were arsons of other types of property.


According to the FBI, the rate of arson was 24.7 offenses for every 100,000 inhabitants of the United States in 2007. Arson rates were highest in cities with populations of 250,000 or more, at 40.8 per 100,000 inhabitants. The arson rate for suburban areas was 18.8 per 100,000 inhabitants.


In 2007, the average loss value per arson offense was $17,289. For structures, arson damages were $32,364 on average and $7,890 for motor vehicles. Arsons of industrial and manufacturing structures resulted in the highest average dollar losses—an average of $114,699 per arson.


Arson in the nation's cities fell 6.3 percent in 2007 from 2006. The number of arson incidents in 2007 fell in the nation's largest cities, down 7.2 percent in cities with more than 250,000 inhabitants and down 1.8 percent in cities with 100,000 to 250,000 people. In metropolitan counties, arson offenses fell 8.8 percent from 2006 to 2007, faster than the 5.1 percent decline in nonmetropolitan counties. In suburban counties arson offenses fell 7.9 percent.


Arson has one of the lowest clearance rates of any major crime. The national rate in 2007 was 18.3 percent, cleared either by arrest or exceptional means. Motor vehicle clearances were lower in 2007, at 12.6 percent.


Clearances for juveniles (under the age of 18) were 39.6 percent—the highest percentage of all offense clearances involving only juveniles.



RECENT DEVELOPMENTS


Insurers have been watching to see if the subprime mortgage crisis will spur arson by homeowners facing foreclosure. Higher monthly mortgage payments when low introductory rates expire, falling home values, stricter lending practices that reduce the possibility of restructuring a loan or refinancing and the resulting increase in the national foreclosure rate may lead to an increase in homeowner arson. Presently there are no data to show an increase directly linked to foreclosures. In fact, the number of arson offenses reported for single occupancy residential structures fell 4.0 percent from 11,448 in 2006 to 10,995 in 2007.



INTENTIONALLY SET FIRES, 1998-2007 (1)

($ millions)



Structures
Vehicles

Year
Number of fires
Property loss
Number of fires
Property loss
1998 46,500 $816 NA NA
1999 43,500 828 NA NA
2000 45,500 792 NA NA
2001 45,500 34,453 (1) 39,500 $219
2002 44,500 919 41,000 222
2003 37,500 692 30,500 132
2004 36,500 714 36,000 165
2005 31,500 664 21,000 113
2006 31,100 755 20,500 134
2007 32,500 733 20,500 145
(1) Includes the events of September 11, 2001, which accounted for $33.44 billion in property losses.

NA=Data not available.

Source: National Fire Protection Association.



STRUCTURE FIRES IN RELIGIOUS AND FUNERAL PROPERTIES, 1980-2002 (1)






Direct property damage
($ millions)

Year
Fires
Civilian deaths
Civilian injuries
As reported
In 2002 dollars
1980 3,500 2 23 $62.1 $135.7
1985 3,020 0 30 60.5 101.0
1990 2,100 0 17 62.1 85.6
1995 1,890 5 62 52.1 61.5
1996 2,180 1 27 62.1 71.3
1997 1,950 0 25 43.6 48.9
1998 1,910 4 25 68.0 75.1
1999 2,000 3 26 100.8 108.8
2000 1,620 0 16 94.9 99.2
2001 1,750 0 24 85.2 86.6
2002 1,670 1 15 104.3 104.3
(1) Estimates of fires reported to U.S. municipal fire departments. Exclude fires reported only to Federal or state agencies or industrial fire brigades. National estimates are projections. Casualty and loss projections can be heavily influenced by one unusually serious fire.


Source: National Fire Protection Association.



INTENTIONAL STRUCTURE FIRES IN RELIGIOUS AND FUNERAL PROPERTIES, 1980-2002 (1)






Direct property damage
($ millions)

Year
Fires
Civilian deaths
Civilian injuries
As reported
In 2002 dollars
1980 1,320 2 5 $39.9 $87.1
1985 1,030 0 5 28.4 47.3
1990 640 0 2 21.4 29.5
1995 450 0 1 24.7 29.1
1996 570 1 3 19.5 22.4
1997 390 0 2 12.3 13.8
1998 380 0 7 25.5 28.1
1999 360 0 0 24.7 26.6
2000 320 0 0 6.7 7.0
2001 240 0 0 18.3 18.6
2002 240 0 0 28.6 28.6
(1) Intentional fires for 1980-1998 include fires coded as incendiary or suspicious and proportional share of fires in which the ignition factor was unknown or not reported. Estimates of fires reported to U.S. municipal fire departments. Exclude fires reported only to Federal or state agencies or industrial fire brigades. National estimates are projections. Casualty and loss projections can be heavily influenced by one unusually serious fire.


Source: National Fire Protection Association.



BACKGROUND

Anti-arson efforts represent one of the earliest organized activities of the insurance industry in America. The National Board of Fire Underwriters, one of the oldest business organizations in the country, was formed in 1866, partly in response to the problem of arson. In 1926 the Association of Casualty and Surety Companies was founded. One of its major divisions was a fraud bureau.

Insurers have an interest in preventing and detecting arson because the cost of arson claims pushes up costs to insurance buyers. Insurers will not pay a claim if a fire can be proved to have been deliberately set by a claimant or someone acting on his or her behalf in an attempt to defraud the insurer. However, many arson fires, such as those set by vandals or for revenge, are not fraud and result in legitimate claims. Another issue of concern to the industry is that even when arson fraud is proved, the insurer may still have an obligation to pay the mortgage holder the amount of the remaining payments on the outstanding mortgage.

Arson is less of problem that it was a few decades ago. In a 1982 study, the Insurance Research Council (IRC) found that, in residential fires reported by insurers, 11 percent of the fires were traced to arson. These fires accounted for 14 percent of the dollar amount of losses. For fires at commercial sites, arson was suspected in 27 percent of the fires, and they involved 37 percent of the dollar losses. The IRC studied reported fires in structures insured in the voluntary market only, i.e., not in Fair Access to Insurance Requirement (FAIR) plans or other property plans which make insurance more available to those who have difficulty obtaining it in certain states because of abnormal exposure to risks over which they have no control.

Motives for Arson: Most industry observers point to profit as the primary motive for setting fires, and have commented on the increased use of arson by organized crime and drug dealers. The IRC study found that the most frequent motive for arson in the voluntary market for residential insurance was vandalism. Fifty-three percent of the fires the IRC studied cited vandalism as the motive behind setting the fires. Fraud was the motive in 14 percent of the fires, followed by revenge, accounting for 12 percent of the fires, concealment of another crime, 6 percent, and pyromania, a mental illness, accounted for 3 percent of the fires. Twelve percent cited other factors.

Juveniles: Typical arsonists are surprisingly young. Nearly half of the people arrested for arson in 2005 were under the age of 18. Analysts note that the motive for arson among young firesetters is rarely profit, although young people are occasionally offered money to torch businesses. More than likely, young people commit arson out of a desire to vandalize property and for the thrill of seeing a building burn. These factors make fire claims more complex when arson is determined to be the cause of insured fire losses. Insurers must investigate further to establish whether the policyholder was involved in an attempt to burn down a business, or if a young thrill seeker was responsible for the fire.

Experts have found that fire setting begins at a very young age. In general there are two main types of children who start fires—2- to 7-year-olds, who do not understand the destructive nature of fire, and whose fascination leads them to "play" with fire, and 5- to 17-year-olds, who may start fires as a result of emotional or mental problems. To help promote programs that have been successful in preventing juvenile arson, the Institute for Social Analysis, a social science research group, examined state-of-the-art juvenile arson prevention programs nationwide under a grant provided in 1988 through the joint efforts of the U.S. Fire Administration and the Office of Juvenile Justice and Delinquency Prevention. They found that intervention programs can successfully combat juvenile arson and firesetting. However, the researchers also found that juvenile firesetting programs seldom have working relationships with law enforcement groups, prosecutors or the courts. Such relationships are necessary to ensure adequate tracking of all juvenile firesetters. Most programs report very low recidivism rates (less than 5 percent) and several report significant, often dramatic, reductions in the number of fires set by juveniles after the establishment of the juvenile firesetter program.

Arson Reporting Immunity: In 1984, South Carolina became the fiftieth state to pass an arson reporting immunity law. These laws enable insurers and authorized agencies such as law enforcement officials to exchange information freely without threat of civil suits for violation of privacy. By encouraging the exchange of information, arson reporting immunity laws increase the number of fraud arson claims denied and the number of arson arrests and convictions. Arson reporting immunity laws vary from state to state. Not all states will grant immunity to insurers and their representatives, along with authorized state and local agencies. Twenty states grant immunity to insurers and authorized agencies unless fraud, malice, lack of good faith or criminal conduct on the part of an insurer or representative is shown, according to an Insurance Committee for Arson Control compendium. All but three states mandate that insurers notify authorized agencies when they suspect arson. Twenty-eight states have penalties for failing to comply with mandatory arson reporting laws.

"Bad Faith" Lawsuits: An additional legal problem that insurers face in combating arson is "bad faith" lawsuits. Insurers are obliged to settle claims speedily. When a claim is denied because of arson, some claimants take the matter to court, suing insurers not only for the insurance money, but also for "bad faith" or punitive damages. Even when the insurer wins, these suits consume time and money.

Insurer Initiatives: As part of the insurance industry's continuing commitment to fight arson, the nation's property-casualty insurers embarked in 1978 on a broad-based campaign. A key element in their strategy was the establishment of the Insurance Committee for Arson Control (ICAC), which serves as a national resource, education and communications organization. Also involved in arson control is the National Insurance Crime Bureau (NICB). NICB provides training to insurance claims personnel and investigates questionable insurance claims, including suspected arson.

To gather evidence on claims that appear fraudulent many insurers have set up their own Special Investigation Units (SIUs). The majority of insurance companies formed SIUs or units with similar functions to investigate such claims, and most were using these units to investigate vehicular and homeowner arson. By the mid-1990s, insurers said that for every dollar they invested in all anti-fraud efforts, which included the use of SIUs, they were recovering $27. However, by the end of the decade, these returns became harder to achieve as the more apparent fraud was uncovered, and more effort was needed to ferret out the sophisticated fraud that remained.

Insurers have other basic methods of controlling arson. They can ask prospective insureds to fill out an investigative questionnaire, known as an anti-arson two-tier application, that may alert agents and underwriters to prior fire losses, tax liens against properties, fire-code violations and other indicators of danger ahead. It also can signal to the insured that the company is aware of these problems; that knowledge, in turn, may deter an arsonist. Another strategy is to ensure that the policyholder signs the application, thus giving the insurer grounds to deny a claim if false statements are made.

Once a policy is in force, indications that a property is likely to be an arson target may come to the attention of insurers. But in most states, insurers are unable to cancel a policy until it has been in force for one to three months, which gives the policyholder time to commit arson. Insurers are working to shorten notification requirements.

Insurers are also using computer modeling programs that show how different burning materials react with specific structures, enabling investigators to determine how fires were started. Some large companies have sophisticated laboratories that use state of the art technology to work with claims personnel and investigators to study fires. Another important development is the partnership between the Bureau of Alcohol, Tobacco and Firearms, the USFA, the NFPA and the American Re-Insurance Co. to develop a virtual reality training program using CD-ROMs to simulate fires. It enables the user to track his or her progress in investigating the fire and provides a tutorial if mistakes are made. The USFA also responded to a tragic Massachusetts fire by producing a new CD-ROM designed to train firefighters to respond more effectively to abandoned building fires, well-known as arson targets.

Federal Arson Law: The Arson Prevention Act of 1994 established a competitive grants program to be administered by the United States Fire Administration. Originally, the Act provided for 10 grants to be awarded to states or groups of states that develop programs relating to arson control and research. Examples of areas covered by these programs include improving arson investigative training leading to professional certification; providing resources for forming arson task forces that involve all appropriate local agencies such as the fire and police departments; combating and studying fraud, civil unrest, drug trafficking, and domestic violence as causes of arson; and combating juvenile arson by setting up counseling programs.

Church Arson: The National Church Arson Task Force, which includes FBI, Bureau of Alcohol, Tobacco and Firearms personnel, Justice Department and U.S. attorneys, the U.S. Marshals Service and state and local fire and police personnel, was formed in 1996 in response to a rash of fires at houses of worship, mostly in the South.

Also in 1996, the Church Arson Prevention Act was enacted, making destroying places of worship a federal crime and doubling the maximum penalty to 20 years, and at least 10 states have toughened penalties. In addition, the National Arson Prevention Initiative, a cooperative effort led by FEMA, and joined by the Departments of Justice and the Treasury, was formed. A coalition of Congressional representatives, insurers, and fire department officials announced prevention programs designed to combat church arson: a reward fund has been set up for information leading to the arrest and conviction of church arsonists; a toll-free insurance helpline for churches is in operation; and insurers offer a free on-site church inspection to identify and correct security and fire risks.

The National Fire Protection Association (NFPA) tracks the number of intentional fires in religious and funeral properties from data collected by the National Fire Incident Reporting System (NFIRS) from the U.S. Fire Administration of the Department of Homeland Security. The data include fires in structures such as churches, temples, mosques, religious education buildings and funeral and related properties that were reported to fire departments. The NFPA says that there were 240 intentional church fires in 2002, the latest data available, down from 390 in 1997. Older data show that the number of intentional church fires has been trending downward steadily from a high of 1,320 fires in 1980 and 1981. However, property damage amounted to $28.6 million in 2002, compared with $12.3 million in 1997.

The leading cause of church fires is arson, which accounts for about one out of every four reported church fires, according to the NFPA and the United States Fire Administration (USFA). Fire officials and insurers say that arson fires are relatively common at all types of houses of worship and that they are motivated by vandalism and revenge, along with efforts to conceal other crimes, such as burglaries. However, racial bias has long been known as a factor. A 1997 study by the USFA found that of the 230 church arsons investigated, 41 percent targeted black churches and 59 percent targeted white churches. Motives of the 100 people arrested in those fires included racial hatred, but juvenile vandalism, insurance fraud and thrill-seeking were also factors. Churches are also targets because they are unoccupied at night and for long periods of time during the day. Insurers advise churches to install good lights and burglar and fire alarms, use locks on all doors and windows, and trim shrubs and trees especially near windows and doors. They also suggest hiring security guards, organizing a church watch, and setting up arson hotlines and education programs.




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