Just guessing, but it looks like someone terminated 2 conductors under one screw, with one of those conductors the equipment grounding conductor, and one the grounded (neutral) conducotr. This is verified by the set just above the damaged set.
Even if this panel had identified the terminals as being ok for more than one conducotr, the more than one conductor would still have to be only equipment grounding conductors, never the grounded.
Now the problem. Due to the loose screw, there was arcing due to the load, then overheating of that conductor, then insulation failure.
Solution? Shoot the guy who did it? Na, he just didn't know (how many of us did this in the past, before getting an education here on this forum, or other ways!!!). Cut back the neutral to a point where the insulation is not damaged, splice a new piece in, and terminate it correctly.