The Car Arson Trend Is Big Trouble For Insurers


You’ve probably seen the headlines this week about rising car arson. Stories about people setting their own cars on fire to collect insurance money make for good econo-trend pieces, kind of like people eating Spam again or buying knockoff handbags.

But maybe it’s more than just a quirky story about a nuisance to car insurers.

Think about it: The risk to a car insurer is thought to be definitionally un-correlated. Unlike, say, insuring against homeowner defaults, there’s almost no trend that could cause car insurance claims to rise or fall in unison. There’s no reason to think that a deep recession would contribute to more or less claims… on legitimate accidents.

So what are the odds that the big car insurers, like Berkshire Hathaway’s (BRK) Geico or Progressive (PRG), have planned for an actual wave (even a small one) in new claims? Sure, they’ll try fighting many of these in court, but the customer is bound to win some of these cases. And that’s a trend they haven’t likely factored in.

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