Seeing as you only have the arms your only option is to do collision on the capsule.
On hit → break result → If “hit component” is capsule → calc damage → apply damage.
If you add a full third person body you can then add physical materials to the phys asset collisions and do per appendage dmg…or go crazy and do bone look ups. Traces/projectiles need to ignore the capsule though. You’ll need a custom collision channel for the capsule (Pawn Capsule) and one for the projectile or Trace.
I personally do phys materials on the physics collision components.
Arm, Hand, Leg, Foot, Head, Neck, chest, Torso, Pelvis
