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Insurers wonder if sluggish economy spurs arson
By Scott Miller
Staff Writer
State Farm Insurance underwriter Ernie Dorsey called corporate investigators recently to see if fraudulent claims from arson are on the rise.
The economy is hurting. The housing market is slow. Some homeowners are unable to keep pace with the ballooning payments on their subprime mortgages.
But the answer Dorsey received was somewhat surprising, though comforting at the same time. The number of fraudulent claims involving arson is not climbing.
“I still have more faith in people,” Dorsey said, noting that arson is a last-ditch effort for some to escape financial obligations. “It takes a lot to make that leap.”
In the back of his mind, though, he still wonders if the worst is yet to come.
“You’re seeing people in financial straits. You see more houses for sale. I thought we’d see more vandalism too. Vacant homes are attractive to (vandals), but we’re not seeing that either,” Dorsey said. “Would it surprise me in the next 12 months if our arson claims went up? No.”
Conflicting stats
State Farm, which covers more than 26% of the property market in the state, did not report a significant increase, Dorsey said.
A spokesman for Allstate Insurance, the state’s second largest insurer, said the insurer doesn’t track that information.
Nationwide Insurance has seen a slight increase, but nothing significant, said spokeswoman Nancy Smeltzer.
Combined, the three companies account for more than 40% of the state market for property insurance, according to the most recent stats from the S.C. Department of Insurance.
While none of them reported a rash of arson when asked directly, insurers are telling a different story to the S.C. Insurance News Service. Responding to a survey by the agency, insurers reported 40% to 200% increases in arson-related insurance fraud from 2006 to 2007, said Allison Dean Love, executive director.
“There’s no way for us to know if this is tied to the economy or not, but some suspect it is,” Love said.
Survey respondents represented 70% of the property insurance market, she said.
In 2006, the insurance industry experienced a major jump in total fraud cases, according to the S.C. Attorney General’s Insurance Fraud Division. The division reported 722 fraud complaints valued at $15.36 million that year, up from 569 complaints at $5.34 million in 2005.
But the numbers decreased slightly last year to 712 complaints at $8.38 million.
Figures include all types of insurance fraud, including property, auto, life and workers’ compensation. Half of all cases stemmed from automobile claims, which also could involve arson, 14% from workers’ compensation and 13% from personal and commercial property. Fraud-related health policies accounted for 9%.
“Insurance fraud affects everyone in South Carolina by causing higher insurance costs,” said Jody Parker, president of the S.C. Insurance Fraud Investigators. “The recent downward trends with the economy, the issues with adjustable-rate mortgages and gasoline costs have also been reasons for some to try to escape their financial obligations with their lenders by cashing in on the insurance proceeds.”
Arson arrests flat
But according to figures from the S.C. Law Enforcement Division, arson-related arrests are not significantly on the rise.
The agency made 212 arrests in 2006, compared to 215 in 2005 and 185 in 2004. Numbers for 2007 were not available.
The agency investigates fires when requested by another agency, like a local fire department, for example, said spokeswoman Bobbi Schlatterer.
In 2006, Charleston County made 28 arson arrests, according to figures from SLED, while Berkeley County made six and Dorchester County two.
In 2005, Berkeley and Charleston counties each reported 10 arson arrests, while Dorchester County reported three.
Scott Miller is a staff writer for the Business Journal. E-mail him at smiller@scbiznews.com.
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