Federal Crime Insurance
Insurance companies make profits in two ways: They adjust their rates continuously so that they take in more money in premiums than they pay out in claims, and they invest the money paid by policyholders in order to collect interest, divi- dends, and rents. To contain costs and limit pay- outs, companies raise their rates, place caps on reimbursements, impose sizable deductibles, and exclude certain kinds of losses. One irony of the for-profit insurance business is that those who face
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the greatest risks and therefore need coverage the most are sometimes either denied policies outright or charged exorbitant premiums that they can’t afford.
The insufficiency and unfairness of private insurance underwriting practices first received pub- lic attention during the late 1960s. The National Advisory Panel on Insurance in Riot-Affected Areas (part of the National Advisory Commission on Civil Disorders) in 1967 examined the plights of inner-city residents and businesses that had suffered losses due to looting and arson during ghetto rebel- lions. The panel cited a general lack of insurance availability as a factor contributing to urban decay: the closing of businesses, the loss of jobs, the aban- donment of buildings, and the exodus of residents from high-crime areas.
In 1968, Congress followed some of the panel’s recommendations and granted relief to those who suffered from insurance redlining (an illegal, discriminatory practice that results in denial of coverage). The Department of Housing and Urban Development Act set up Fair Access to Insurance Requirements plans to make sure that property owners were not denied fire damage coverage solely because the neighborhood had a high rate of arson cases. In 1970, Congress amended the 1968 act to permit the federal gov- ernment to offer affordable burglary and robbery insurance directly to urban homeowners, tenants, and businesses in areas where such coverage from private companies was either unavailable or unreasonably expensive. Federal intervention into the insurance market to assist actual and potential crime victims was viewed as a last resort (Bernstein, 1972). The Federal Emergency Man- agement Agency currently runs the Federal Insur- ance Administration.
Once the government began to sell insurance coverage, it became reasonable to ask whether public funds could be set up to bail out families that faced economic ruin because they were not willing or able to pay for private insurance policies, or were inade- quately protected, especially against huge medical bills and lost earnings. Public insurance plans are called crime victim compensation programs.