Arson Seen as Growing Risk as Home Values Fall
Arson is being touted as a growing insurance fraud risk given the decline in home values, according to the Insurance Information Institute.
The institute says that arson fraud in addition to raising the cost of insurance for homeowners causes needless property damage and loss of life in some cases.
The institute says that insurers are concerned that the subprime mortgage mess could "spur arson" by homeowners facing foreclosure. Suspected mortgage-related home arson cases have jumped 50% above the 2006 rate in California, according to that state's insurance department.
Insurers have set up a computerized database of property claims to help identify suspicious fires, and the companies have also established units to investigate suspected arson. The institute also notes that state laws now allow a free exchange of information between insurers and law enforcement agencies, diminishing the risk of litigation alleging libel or privacy violation.
Nonetheless, arson remains a property insurance problem. Intentionally set fires destroyed more than $900 million worth of property in 2006, up 17% from the year before, according to the National Fire Protection Association.
On a positive note, the number of arson fires actually declined slightly last year.
The NFPA tallied 31,000 intentionally set structure fires in 2006, down 1.6% from 2005. And that's down considerably from 1997, when the NFPA counted 52,000 such fires. Arson accounted for 6% of all structure fires in 2006.
Most cases do not involve insurance fraud. Rather, the institute claims that vandalism is the leading cause of arson damage. Children are responsible for half of all arson fires set in the U.S.
The institute estimates that fraud accounts for 10% of property/casualty claims each year, costing the industry an estimated $30 billion.
SNAPSHOT: ARSON CASES IN 2006
Arson-Related Property Damage $909 Million
# of Intentionally Set Fires 31,000
Civilians Killed 305
% of Arson Motivated by Insurance Fraud 14%
Source: Insurance Information Institute/National Fire Protection Association
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