Staff Study of the Role of the Insurance Industry in Dealing With Arson-For-Profit.
Permanent Subcommittee on Investigations of the Committee on Governmental
Affairs, United States Senate. U.S. Government Printing Office, RR No. 6499.
Washington: February, 1979.
Abstract: This article is a report submitted by the subcommittee
of investigations of the U.S. Senate regarding the insurance industry's
role in the problem of arson for profit. The report concluded that insurance
companies actually contribute to the arson crisis. The subcommittee suggests
that the insurance industry should change some of its practices to reduce
the number of arson for profit crimes.
Insurance companies often insure property at an inflated value. This
subcommittee concluded that many arson for profit schemes involved deliberate
over-insurance. This study places the blame on insurance companies for failing
to check the true value of property before insuring it. This subcommittee
report also suggests that insurance companies do not complete thorough background
checks of applicants. This senate report also cites the eager insurance
agent as part of the problem. Most agents are concerned about the commission
from the sale of insurance, rather than protecting the insurer.
Arson cases are rarely challenged in court. Most insurance companies
settle out of court to avoid costly litigation. Insurance companies will
negotiate with suspicious claimants to save money. One company surveyed
admitted their strategy of threatening suspicious claims with legal action
to urge them to settle for less, saving the company money.
Insurance companies point to privacy laws as the main obstacle for arson
investigation. Privacy laws protect individuals against disclosure of information
about them. This prevents insurance companies from contributing information
to law enforcement agencies because the individual can sue for slander.
The subcommittee offers recommendations to insurance companies to combat
the problem of arson. These suggestions include property inspections and
background checks of applicants. The study also suggests insurance companies
take more suspicious claims to court. Other recommendations are also provided
in this report.