Many people may not be aware, but the first week of May was Arson Awareness Week. With the myriad of challenges facing claims organizations, combatting arson can provide some of the most challenging of all claims.
While it would be nice to simply say, “Don’t pay that claim, it is fraud’” the reality is that rarely happens. It sure would be nice if adjusting claims were that easy. Imagine if a simple review of a claim could yield a definitive answer of pay or deny. But, alas, this is claims where much of what we do is conducted in a world of gray.
So just how do we get to the bottom of adjudicating claims involving fires? Often, it is the same way that we have done it for decades. We examine facts. We look for answers. We put together the pieces of a puzzle as it if were a great mystery novel.
Sometimes the puzzles are easy. The insured presents a claim for a torched car, and once confronted, confesses to financial troubles and relinquishes the claim. But, more often than not, it is much more complicated. There are any number of steps that have to be taken to determine the veracity of claims, and even when suspect, most end up getting paid. Why? Because it is the lowest ultimate cost in a litigious society where juries are completely unpredictable.
Back in claims school, more than two decades ago, we learned how to torch a car. While I am not sure what the rationale was, I vividly recall the recommended combustible; a potato chip bag. The cooking oil and fat content used to make chips and the resulting oil and fat that line the interior of the chip bag make them extremely flammable. They will also burn completely, leaving no positive indication of an accelerant.
According to the U.S. Fire Administration, a division of FEMA, there are anywhere from 25,000 to 35,000 vehicle arsons in the United States annually. Arson is a challenging crime, resulting in one of the lowest clearances by law enforcement of any crime, at just 17.1%. Vehicle arson, which accounts for 20% of all arson, has an even lower clearance rate at 7.4%.
The challenges from a claims perspective are many, not the least of which are loss payable clauses contained in many policies. These virtually assure that lienholders, irrespective of the behavior of insured’s, will be paid for their losses. As a result, many intentionally set fires do ultimately get paid.
Investigating arson is very challenging because there are so many natural accelerants in vehicles. The same holds true for boats, farm equipment, homes and businesses. Fuel sources can include gasoline, wiring, interior or exterior components or something introduced, such as a bag of potato chips.
When something burns, it is very easy for the owner to simple deny any involvement. This “prove it” mentality is highly effective, and requires a very detailed investigation. The primary reason for arson, when insurance is available, is financially driven. Let’s face it, the economy has been in shambles for the past five or six years. Gas prices, while volatile, are much higher than a decade ago. There are many instances where people are upside down in loans and can no longer afford loan payments, lease payments, gas and insurance. This creates a financial motive.
Like other crimes committed against insurance companies, arson is not a victimless crime. It accounts for $165 million dollars in indemnity payments, which ultimately get passed along to honest policyholders. From 2007-2011, there were an average of 32 deaths and 67 injuries arising out of vehicle arsons annually, meaning the damage is not purely monetary.
So what steps should your adjusters be taking when investigating vehicles fires?
1) Obtain a good, detailed statement. Ideally, this statement will take place in person, where eye contact and body language can provide telltale signs of potential involvement.
2) Require a fire affidavit, or sworn statement, that attests to all facts known about the vehicle fire, before, during and after the occurrence. Require that it be returned via the United States Postal Service, under which prosecution for fraud can become a federal offense.
3) Request a detailed financial affidavit. Create a financial profile. As we have discussed when pursuing subrogation, use similar resources to assess finances, relationships, prior crimes, civil matters, etc.
- Equifax, Transunion.
- Accurint, Choicepoint, LexisNexis, etc.
- State and Local Public Record Databases.
- Motor Vehicle Records.
- Criminal and Civil Court Records.
- Police Records.
- Neighbors, Witnesses and Informants.
- Ex-spouses and Estranged Family.
- Bank Statements, 401K, tax returns.
4) Spend time scouring social networking sites such as Facebook, which can become a treasure trove of information among an attention craving public.
5) Conduct a drive by of the insured home and canvass neighbors.
6) Establish a financial motive, such as a person recently losing their job or getting divorced, now struggling to pay that high dollar lease.
7) Trust your gut! As discussed in Blocking & Tackling: The Playbook for the Winning Claims Organization, your senses are usually right. That said, you still have to build a case. You have to turn over every possible rock to unearth the truth.
8) Utilize forensic experts. In a day and age of cost cutting measures, experts are often a casualty. This is unfortunate, because conducting an analysis of the fire can yield tremendous dividends. Certainly there are lowest ultimate cost considerations, but those should not be limited to just the insurer, but weighed against the costs of paying the loss that will ultimately be borne by the public, who may opt to shop elsewhere when premiums get too high.
9) Utilize fire officials. The first responders often glean a lot of information from the evidence, which can disappear over time. Talk to those who first arrived on the scene, as well as any subsequent fire or police investigators. They can provide valuable clues to assist with your investigation.
10) Investigate manufacturer recall information, as well as any vehicle recalls listed at NHTSA.
11) Never underestimate the Examination Under Oath which can provide a substantial amount of information, in particular when the facts start to become muddled. While an involved party may have the composure to think through a fire or financial affidavit, they often lose that edge when confronted with questions in an EUO. Over the course of my adjusting years, this was one of the most powerful tools we used, and was often the last line of defense to getting claim withdrawals on fraudulent claims.
While these are just a few guidelines, they do provide some basic steps towards proper adjudication of claims. As is always the case, claims such as vehicle fires, pose some very real challenges. First and foremost remains the fact that most claims aren’t fraudulent. Fires can happen spontaneously, and just because there is a fire, there often isn’t arson. Rather, it is important to take each claim individually and evaluate the merits. Utilizing internal SIU, fire specialists, law enforcement and the legal community can provide a tremendous amount of support and expertise towards driving to the right outcomes. But, also remember the significant costs associated with vehicle arson, and the toll it is taking on the premium paying public when conducting these investigations.