A fire can wreak havoc on the best managed business and many companies never recover from the setback. Here's how to help your commercial clients avoid falling prey to a firebug and also how to spot an opportunistic arson insurance fraud in the making.
There are many motivations for arson, including revenge, juvenile boredom, crime concealment, terrorism, psychiatric problems, business rivalry and financial insurance fraud.
And according to the Australian Institute of Criminology and the Insurance Council of Australia, the major motivator is financial gain through insurance fraud.1
This has serious implications for the near to medium term given the world is currently still in the grips of a global financial crisis. As the downturn continues to impact the economy and individuals and small-to-medium businesses suffer from the fallout, the rate of insurance-fraud-related arson is expected to rise.
There are some early signs that this is already occurring in the United States and other parts of the world. In the US, the National Insurance Crime Bureau says referrals for suspicious vehicle fires have increased by 27 per cent in 2009 compared to 2008 as the recession continues to bite.2
To add fuel to the fire, another potential reason for the predicted rise in arson-related crimes is the difficulty in catching and punishing the perpetrators. According to a study by the NSW Bureau of Crime Statistics and Research, only five per cent of arson offences result in an arrest.1
The cost of arson is often difficult to quantify. At best, arson statistics usually represent educated guesses. While the Australian Bureau of Statistics (ABS) compiles data on a number of crimes (e.g. homicide, assault, robbery, motor vehicle theft etc.), they don’t record arson figures.
The reason arson is normally grossly underreported is the difficulty in proving criminal intent in many cases. The Australian Institute of Criminology estimates that the cost of arson in 2005 in Australia was $1.6 billion and that it accounts for eight per cent of the total crime cost in Australia (see box).1
This does not take into consideration medical expenses for arson victims and intangible costs, such as loss of productivity or social impacts. Hence, the actual costs of arson could be several multiples higher.
Some of the hidden costs of arson to individual businesses include:
Statistics shows that many businesses affected by a major fire either never recover or close within two years of reopening.
Zurich Risk Engineering works with brokers and clients to reduce their claims by developing specific solutions for their businesses in the form of risk improvement recommendations. The recommendations that the team has found to be most effective in preventing arson include installing/implementing the following security measures:
Most arson attacks happen at night, when there’s a reduced likelihood of potential witnesses and most businesses are closed. The threat of identification via security cameras is often an effective deterrent for trespassers and thrill-seeking arsonists.
In turn, an automatic fire detection system enables an early response by the fire brigade should a fire be lit in the premises, while sprinklers can contain or extinguish the fire and thereby limit the potential damage. Businesses should ensure that all sprinkler valve locations are locked and equipped with anti-tamper devices.
It’s also important to make sure that industrial rubbish dumpsters, boxes, wooden pallets, crates, plastic ‘wheelie’ bins and other potential fuel sources are locked and secured in areas where arsonists cannot access them.
Easy targets for arsonists include premises located in remote locations, away from public thoroughfares and with poor physical security, as well as unoccupied buildings, which tend to attract squatters, drug addicts and bored juveniles looking for a thrill. It doesn’t take a lot for a squatter to knock over a candle or for some kids to set fire to a building when it is vacant.
Likewise, the local demographics of some locations put businesses in these areas at increased risk of thrill-seeking firebugs. Studies have shown that firebugs tend to be young men from poorer areas where there is also a strong link with other crime forms. Nearly one in two alleged offenders is a male aged between 15 and 19.1
One of the key commonalities of arson targets is the ease of gaining entry into the site undetected. Property owners and businesses located in high-risk areas need to be especially vigilant about arson and ramp up their physical security measures.
While arsonists motivated by personal reasons (e.g. jealousy, revenge and psychiatric dysfunctions) are often difficult to predict, that’s often not the case with financial gain arsonists. There are many tell-tale signs or risk indicators that an astute risk assessor or property underwriter will look out for, including:
1 Australian Institute of Criminology, National Workshop: Focus on the arsonist and arson prevention 1994, Discussion Paper.
2 “Insurance fraud referrals on the rise but cause remains in question,” Best’s Insurance News, 12 June 2009.© Zurich Financial Services Australia October 2009