Regional agencies should be set up to improve prosecution rates on the £2.1bn of arson damage each year, according to the ABI.
A report by the Arson Prevention Bureau into the problem, estimated to cost the insurance industry £700m annually, recommends specialist agencies staffed by members of the fire brigade to improve on current prosecution rates.
ABI head of household and property Jane Milne said: "As a nation we have an abysmal prosecution rate on arson cases - only 1.5% are successful. There is no incentive not to commit the crime in terms of ever getting caught."
Although the report focuses on Scotland, the ABI recommends the conclusions should be applied across the rest of the UK.
The report proposes a tiered approach, starting with local experts in each fire station moving on to regional agencies staffed with experts.
Milne said: "What we have concluded is that it is the fire service that have the expertise to deal with the issue."