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Insurers Could Become Fire Fighters de Facto, and Face 'Alarming' Bills

As ominous as a fire bell in the night is the news that Passaic, New Jersey Mayor Alex Blanco is considering billing insurance companies for fire department services. The state of New Jersey, as well as most of its municipalities, is facing a serious shortfall in revenue. By the latest count, outgoing Gov. Jon Corzine is leaving his successor, Chris Christie, with a $34 billion deficit - just at the state level.
And California's budget problems are even worse. Most states and municipalities are facing the prospect of empty pockets and higher taxes.

But Blanco has a solution, well, a partial solution. Charge the property insurance carrier whenever the fire trucks roll up to a building that the company insures; $500 for a residential home and $25,000 for a commercial building. The Passaic mayor says that would bring in at least $150,000 a year to the city's depleting coffers.

And according to an Insurance Journal story, fire department calls to car accidents and fires could also be subjected to billing. A mere $150,000 spread throughout the industry isn't going to put a dent in Allstate, Farmers, Hartford Financial, State Farm or Travelers. But what if every municipality and city starts doing this? As critics of the Blanco brainstorm point out, insurers could start raising rates commensurate with their costs.

The ramifications are endless, and not particularly pleasant for the insurance industry. If someone pulls a fire alarm, but there's no fire, who pays? Does an insurer pay more for a big fire than a pot burning on the stove?

California Insurance Commissioner Steve Poizner points out that there's been a 25 percent increase in vehicle arson frauds in the last reported year, as the recession forces people to invent their own "Cash for Clunkers" program. In that case, the insurer would pay twice: once for the car that's been set on fire, and then to put out the fire. In other words, you can't win for trying.

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