The Prevalence of Arson: Financial Impact

Financial Impact

The standard information for estimating the cost of arson and deliberate fires is usually described in terms of insurance claims. The Association of British Insurers estimate that arson costs insurers in excess of £1million per day, and uninsured losses could increase this to over 500 million annually.

However, the financial impact of arson is not simply related to the cost of replacing property that is physically damaged by fire. There may also be costs in terms of the disruption caused by the fire, the cost to health services of treating injuries, as well as the associated reduction in the quality of life the victim may suffer. It is possible to separate these impacts into the following categories:

Direct losses

• Property damage

• Emotional pain and suffering caused by loss of life and injuries that are sustained as a result of fire (although the costs of any death and injury that cannot be quantified numerically).

• Health service costs, and lost productivity, associated with treating and recovering from fire related injuries

• Fire Service response to fires

• Environmental costs

• Lost production

Indirect costs

• Cost of fire protection, both in the infrastructure of buildings and consumable goods such as smoke alarms

• Prevention activity undertaken by the Fire Service (including Community Fire Safety work, and Fire Safety inspection activities)

• Administrating costs associated with insurance policies that are needed because of the risk of fire

The Home Office is currently undertaking research in an attempt to quantify these direct and indirect costs. It is hoped that the initial findings should be available in June 2001.

The Arson Scoping Study attempted to quantify the total cost of arson for the first time. The following financial elements were considered:

• The cost to the insurance sector

• The cost of human casualties

• The cost to society in general

• The cost to retailers

• The cost to the fire service and other public agencies

The table below illustrates that the total estimated cost of arson in the UK is over £1.3 billion per year. However, if uninsured losses, total social costs, and opportunity costs of investigation were included then the real cost would be considerably higher.

Annual estimated cost of arson: 1996/97 England and Wales

Source: Arson Scoping Study

Insurance

At present, the only estimates for property loss are insurance costs based on ABI fire claims where malicious ignition was suspected. Although the ABI does not quantify the number of fire claims, it estimates that about 50% of such claims are due to arson, meaning that arson cost insurance firms about £370 million in 1997 (about £1.3 million per day). A cost of £77 million for malicious car fires and estimated business interruption costs of about £22 million should be added, in total equating to a total insurance cost of £549 million (£1.5 million per day).

Insurers are most concerned by fraudulent arson where they are the ultimate victims. Although the insurance sector has no robust measure for fraudulent arson, it estimates that it costs them around 10% of property loss due to fire (i.e. £74 million in 1997). Even allowing for these additions, the insurance estimate for damage due to arson will be still be understated due to a lack of financial consideration for the following items:

• claims paid by insurers not represented by the A.B.I. such as Lloyds Insurance Syndicates

• most Local Education Authorities have policy excesses in the region of £100,000 each which equates to an annual total of £120 million

• losses dealt with by HM Government

• claims which were not paid by insurers due to suspicions of fraud

• costs associated with the insurance investigation of suspicious fires

• uninsured losses

The Cost of Human Casualties

Arson fires often have a significant impact on whole families. As the 1997 Community Fire Safety Task Force report ‘Safe as Houses’ acknowledged (available at www.odpm.gov.uk/stellent/groups/odpm_fire/documents/page/odpm_fire_601093.pdf, fire can leave victims with injuries which cause a lifetime of pain, leaving permanent physical and mental scars. It is difficult to attribute any monetary value to fire casualties.

The Cost to Society

It is extremely difficult to gauge the total social cost of arson fires. The outcome of widespread arson in the community can create the general depreciation of an area, cause communities to lose pride and respect in their surroundings and contribute to a loss of business and unemployment. There are parts of larger cities where arson vandalism and the physical efforts to try and prevent it (by boarding up empty of derelict buildings) can in be visually detrimental to an area.

The Cost to Retailers

The British Retail Consortium Retail Crime Survey suggested that the 3,250 arson incidents recorded in 1996/97 cost retailers some £21 million. However, there is some risk in using these figures as some elements may already have been taken into account in the insurance costs set out above.

The Cost to the Fire Service and other public agencies

It is estimated that responding to malicious fires costs the fire service £378 million a year. Police costs, based on the arson offences recorded, are a minimum of £71 million a year. The additional cost of forensic support is approximately £0.8 million per year. These figures do not include associated training and investigation costs for the fire and police services nor do they take account of the costs to other parts of the criminal justice system such as courts and prisons

Data from the British Crime Survey indicates that the value of damage resulting from arson incidents varies greatly from negligible costs for more minor incidents (such as those involving fences and dustbins) to very substantial amounts for incidents in which motor vehicles were burnt out.

The table below shows the distribution of costs and the mean cost of incidents. Although the number of incidents in each sweep is not sufficient to present the findings separately, there was in fact no difference in the mean cost from the 1994 and 1996 surveys.

Damage cost of domestic arson attacks to victims (1994 & 1996 BCS)

Notes:

1. Source 1994 & 1996 BCS. Three victim forms. Base excludes don’t know.

2. Number in Sample = 121

The Home Office Research Study 217 ‘The Economic and Social Costs of Crime’ attempts to estimate the real costs of crime in order to help partnerships carry out a meaningful cost-benefit analysis. www.homeoffice.gov.uk/rds/pdfs/hors217.pdf