The underlying thing is it doesn’t necessarily matter in illustrating the point, especially in a discussion about moral hazard. This is because having insurance means the owner now has a strong incentive to see the place burn down (as long as it happens in a way that doesn’t stop a payout) because someone else will pay him if that happens. Assuming that payout is ‘worth it’ compared to the alternative of it not burning down.

It could be from leaving the door open ‘accidentally’ so someone ‘breaks in’ and does it (actually, or intentionally) or it could be hiring someone to do it - as long as they don’t get caught in a way that stops the payout. Or ignoring that pile of cardboard boxes near the oven, or the weird smoke smell near the electrical panel. Or not hiring security when they know they have angry protestors threatening to burn the place down. Or pissing off the local unstable homeless dude, and then not doing anything when he threatens to burn your place down. It doesn’t have to be a rational or conscious decision for it to be a problem for the insurer.

Moral hazard is a fundamental problem with insurance, because insurance by design and necessarily by definition removes loss/creates payouts for events that would otherwise leave the owner solely on the hook. Which if not done carefully, can alter behavior significantly.

It’s usually mitigable, or no one sane (or able to remain solvent long term!) will write such a policy. The early days of insurance, there were plenty of examples of people abusing it or weird edge cases causing insurance companies to go bankrupt. These types of Risks are so obvious though, and the industry so much more mature, that in modern history it’s usually due to corporate incompetence or the like.

For example, good luck getting a huge life insurance policy on a random homeless person and having it pay out if they die (regardless of if you had anything to do with their death).

Or not having a serious investigation if a friend gets in a car accident with you and gets lifelong disability injuries.

Insurance fraud is a crime created for the insurance industry to help protect them, and in theory reduces insurance costs and helps society.

Because this issue is always on their mind for a good reason.

They’re also a business in it to make a profit, and will happily exclude reasonable things and refuse to payout for reasonable claims if they think they can get away with it. Hell, I can’t think of any insurance company that likes paying out for anything.

But that doesn’t change the nature of moral hazard.

Your argument is weird because you’re essentially saying moral hazard isn’t an issue because there are laws making some of the more obvious damaging behaviors illegal.

But that’s like arguing it’s never dangerous to drive a car because there are laws making reckless driving, driving without a license, drunk driving, vehicular homicide, etc. illegal.

When actually, those laws are because at a fundamental level, it’s always dangerous to drive a car, these problems are common, and we’re attempting to mitigate them somewhat because we think (at a societal level) it’s worth it.