Insurance redlining began in the late 1940s – a bit later than its counterpart in the mortgage sector –thanks to both rapid suburbanization and some deregulatory initiatives that were specific to the insurance field. For the next two decades, redlining practices continued to spread. And then, in the 1960s, the mass uprisings hit, sending insurers into a racialized panic. Dollar losses paled in comparison to those resulting from natural disasters, but the industry was convinced that unremitting Black revolt would define the American metropolis for the foreseeable future. And so the insurance market in U.S. cities dried up almost entirely.
When President Lyndon Johnson convened the Kerner Commission in 1967, he established a separate committee to focus more narrowly on the insurance crisis. The committee aimed to both bail out the insurance industry and end redlining practices. It proposed that states establish FAIR [Fair Access to Insurance Requirements] plans: public-private pools of all insurers operating in that state. The proposals were promptly enacted into law the following year, and FAIR plans were set up around the country in 1968.
Despite presenting themselves as a racial justice remedy, FAIR plans sold insurance policies that were exorbitantly priced, failed to protect against basic risks, and often lacked proper inspection procedures. Those best positioned to benefit were absentee landlords. Though access to insurance did increase, this occurred alongside continual redlining by banks and mortgage lenders and all of the cutbacks and disinvestment that accompanied the urban crisis, putting landlords in a position where it was often in their best interest to torch their buildings for the insurance proceeds.
AA: How did money flow between small landlords, insurance and re-insurance agencies, and the government? In other words, how did arson become such a complex business involving what you call a “triangle trade in risk”?
BA: For much of the 1970s, the FAIR plans proved to be remarkably indifferent to the underwriting losses resulting from fraudulent claims. That was partly because FAIR plans were pools of all insurers operating in a state, which meant they could distribute those losses evenly across the entire industry. FAIR plans were notorious for over-insuring buildings for many times what they were actually worth, and they often declined to pre-inspect buildings or investigate loss claims.
Meanwhile, rental real estate – especially, though not exclusively, in rustbelt cities – was experiencing a crisis of profitability. In New York, landlords blamed rent control for their shrinking profit margins, but these issues plagued urban real estate in cities across the country, most of which did not have any such system of rent control. The problem wasn’t rent control; it was mortgage redlining, industrial relocation, and white and capital flight. Once landlords realized they had little chance of selling their buildings for the prices they desired, they looked for ways to liquidate the assets as quickly as possible. Arson became one such way.