The Question of Pricing Mandatory Gun Insurance

In addition to policy arguments such as those against putting costs and responsibilities on the public or burdens on gun owners, the insurance industry has offered two major substantive arguments against mandating gun insurance.  The first, which is the claim that insurance does not and cannot cover, intentional or criminal arguments is simply false.  This has been extensively explored by this blog at the post entitled  “Gun Insurance for Willful, Intentional & Criminal Acts.”  The second argument is basically a “Chicken and Egg” objection.  They claim that insurers have no experience to price such insurance and that without ratings experience such insurance cannot be sold.  This post is to show the reasons that this objection is of greatly diminished importance in the case of mandatory gun insurance.

Why can’t insurers simply add up the losses that are occurring as they are reported by emergency rooms, as part of claims for various other kinds of insurance, media reports and government statistics and assign them different weights in an estimate?  The basic reason is that, with voluntary insurance, the people who will actually buy the insurance are not a representative sample of the risk exposed public.  Sometimes that works for the insurers advantage because people can buy insurance because they are more than typically responsible in many ways and produce fewer than average claims.  But those who know that they have an elevated risk can buy insurance for that reason as well. Continue reading

Should Gun Owner’s Insurance Pay Victims After Gun Theft?

The insurance model recommended by this blog is designed to have insurer retain responsibility for guns after they are stolen.  That means that if a responsible gun owner has a burglary and a gun is stolen and then after the gun changes hands, goes underground and turns up to injure someone in a distant location then the gun owner’s insurance will have to pay.  Gun defenders are quick to object and say that the burglar and the shooter are responsible and the gun owner shouldn’t be held to account for their acts.

In those cases the criminals are, of course,  responsible and if they can be caught and have resources they should be the first to pay to the injured party.  Unfortunately, they often aren’t caught and they don’t have resources and, if they go to prison for their crimes, are unlikely to earn enough in the future to redress the damage they have done.  So the question is should the legal gun owner or the gun owner’s insurance be held responsible in light of their role as enablers of this unfortunate situation.  My answer is that they should be.

Guns are unique among the common articles in our society because they are widely held in large numbers, intentionally designed and made to be effective in killing and injuring persons, and easily transferred into prohibited hands. At least 200,000 and probably twice that or more guns are stolen each year and, because they have serial numbers, do not return to legal hands. Illegal guns almost all start out as legally held ones; there are no significant reports of clandestine gun factories and smuggling across international borders goes from the US to other countries.

Common Law on the subject

There are two mechanisms of judge made law which seem to apply, but judges have not generally made a determination that they should be used for guns that are stolen.  The first is to take into account the fact that a gun is a particularly dangerous object and apply a rule of absolute liability for the harm done by this object as is often done for users of explosives and keepers of dangerous wild animals.  It’s probably not entirely coincidental that guns are powered by explosives and stolen guns injure people when they ‘get out’ into the public.  The second is to have a presumption of negligence under the doctrine of res ipsa loquitur (lit. the thing speaks for itself), the point here being that it’s fair to assume that allowing a gun to be stolen implies that there must have been some negligence.  Just because judges have not widely applied these doctrines on their own to guns does not mean that such a responsibility could not be legislated.

An example of legislation on a similar subject

An example of how this is done in other areas is provided by the dog bite laws in various states.  In California the statue says:

(a) The owner of any dog is liable for the damages suffered by any person who is bitten by the dog while in a public place or lawfully in a private place, including the property of the owner of the dog, regardless of the former viciousness of the dog or the owner s knowledge of such viciousness

I asked a famous dog bite lawyer in California if this would apply after the dog was stolen as was told that as far as he knew there had been no such cases in the courts. His website states that he has never seen the defense of non-ownership succeed.   In res ipsa cases theft is often taken as a sufficient intervening cause to break the chain of negligent responsibility, but that is not a universal rule.  Holding gun owners responsible after their gun gets out of their hands is a matter of policy.  This is a policy badly needed to protect the legions of victims of such guns which should be adopted by legislatures.  Insurance is the most logical mechanism to enforce this policy.

Questions and Answers on Mandating Gun Insurance.

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This post is a good place to start if you’re new to this blog.  Scan the questions and follow the <More> link if you have an interest in a particular area

Q: What is the purpose of mandating gun insurance?

Required insurance for guns or gun owners should be designed to provide benefits for victims of gun accidents or violence. Insurers will automatically take appropriate steps to encourage gun safety as part of their loss control and underwriting activities. <More>

Q: What specifically would be the best insurance system for guns?

Each state should adopt a system of no-fault insurance with a system of delivering medical and cash benefits directly to victims. This insurance should be required to be in place for any firearm brought into or kept in the state in order for that firearm to be legal. It should provide all of the benefits available to victims of motor vehicle or workplace injuries.

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Projected Costs for Gun Insurance are Low!

People who are opposed to gun insurance will often make arguments that the cost will be prohibitive.  They make guesses that it would cost typical gun owners thousands of dollars and work as a backdoor way to prohibit guns.  This is not actually what would happen if insurance was required.  We have enough information to make estimates that would put a ceiling on the average cost and it turns out to be quite reasonable.  Of course, insurers would take particular situations into account and dangerous owners and situations would pay more than average, perhaps much more; but, that’s realistic and can be handled by the owners taking measures to reduce the dangers.

There are two basic reasons that mandatory gun insurance would not be expensive, first there are a huge number of guns and gun owners in the United States to share the cost and, secondly, guns while deadly and causing many deaths do not cause nearly as many injuries as motor vehicles or workplace accidents.  Injuries (and smashed cars) are the great cost for insurers.  The Insurance Information Institute reports 2.5 million auto liability insurance claims per year compared to only about 73,000 non-fatal gun injuries reported by the CDC’s WISQAR’s system.  The report linked below shows that over 8 million persons received compensation for workplace injuries in a single year.

The kind of comprehensive insurance for gun violence victims advocated by this blog would pay three kinds of benefits–medical costs, lost wages and a death benefit.  This is what is covered by existing no-fault insurance in other areas such as motor vehicles and worker’s compensation.

Looking at medical costs, PIRE estimates the total medical cost of firearm injury at $2.88 Billion for 2010 including costs for fatalities.  We will assume that all of these costs are covered by gun insurance for our calculations.

To get an estimate of lost wages we can look at a report by the National Academy of Social Insurance on costs for Worker’s Compensation.  This shows for 2005 that total medical benefits paid as Worker’s Compensation were $25.3 Billion and Cash Benefits were $26.6 Billion.  This ratio of approximately 1-1 if applied to gun insurance benefits would probably greatly overestimate the lost wages because gun victims are often unemployed or paid lower than average wages.  For the purposes of this estimate, it will be assumed that the lost wage benefits will equal the medical benefits.

To estimate death benefits we can assume a payment of $50,000 per non-suicide death.  This is higher than the automobile insurance limits in almost all states.  Multiplied by the annual figure for 2010 of non-suicide gun deaths from the CDC of 12,028 this gives a total suicide benefit cost of $601 million.

Claims for covering all gun injuries would be about $6 billion per year

.Adding the $2.88 billion in medical costs to an equal amount for lost wages and $601 million for death benefits means that insurers could pay all of the economic costs for a total of $6.06 billion in claim payments per year.

Premiums for this insurance would be about $9 billion per year.

The Insurance Information Institute fact sheet shows that in 2010 the total incurred losses to insurers for private passenger automobiles from liability insurance was $64.1 billion.  The total premiums collected for corresponding insurance was $97.6 billion.  If the same claims ratio applies to gun insurance then the total premium for insuring all guns would be $9.2 billion dollars.  We have about the same number of guns as cars but insuring the cars is 10 times the cost or 17 times the cost if we include collision/comprehensive insurance.

This is about $30 per gun and most gun owners would pay less.

Because there are about 300,000,000 guns in private hands in the United States the average cost per gun for this widespread generous insurance would be about $30 per gun per year.  Hardly a prohibitive figure.  But this is only an average.  For responsible gun owners who have a few guns for hunting or a pistol at home for self defense, it would be much lower.  For those who carry guns around it would probably be higher.  For very dangerous persons and situation such as illegal drug dealers it would be much higher.  I think that for the majority of guns which represent very low dangers, it could be handled as a low cost or even a no additional cost provision added to homeowners or renters insurance.

There are a number of factors which could make the cost even lower:

  • The insurers loss control measures such as education and research may work to reduce gun injuries and deaths.
  • The guns which evade a requirement for having insurance would be those with the greatest risks perhaps by being in the hands of criminals.  This would mean the the guns having insurance would on the average be safer
  • This insurance is assumed to have really generous benefits which go to all persons injured.  The benefits actually paid would be some subset of this.
  • Any improvement in gun safety due to other causes would result in a reduced cost to insurers.

Those who think that mandated gun insurance would be so costly as to unfairly burden gun owners or is intended as a covert way to prohibit guns are simply wrong.  It’s a way to aid victims and encourage safe practices.  Insurance facilitates many activities that have risks and can do this for guns as well.

Gun Insurance for Willful, Intentional & Criminal Acts.

One of the things that opponents of gun insurance or insurance trade representatives often say is that insurance cannot cover intentional or criminal acts.  This is simply false.

There are many kinds of insurance that cover such acts.  The key is that the insurance pays to the victim and not the wrongdoer.  It doesn’t have to matter if the deed is done by the purchaser of the insurance or another insured person.  It is important the the policy be written to make this clear; policies that exist at least partially for the benefit of third parties typically work that way.  Insurance that is compelled by law for an activity often applies in these cases even if it’s not spelled out in the policy, but courts differ on this point and an explicit requirement in the legislation and in policy language is a good idea.

Insurance textbooks teach that whether an act is accidental or willful is determined from the viewpoint of the insured.  Mandatory insurance should treat a victim as an also insured party. This is necessary because the purpose of many kinds of insurance is to protect the insured against the willful acts of outsiders. An example would be a day care center that is negligent in screening visitors who might commit an abuse against a child.  From that viewpoint, a act that is deliberate on the part of the abuser is an accident to the victim.

Insurance that pays to innocent victims for willful, intentional or even criminal acts is common when the purpose of the insurance is to protect third parties. Despite the statements from insurance industry representatives– “if you use your car as a weapon to intentionally run down a pedestrian or another motorist, there is no coverage”, motor vehicle insurance in many states would in fact cover exactly that case. The case commonly cited in legal discussions to illustrate this point is Wheeler v. O’Connell, 297 Mass. 549 , 553 (1937) This case held that compulsory insurance was very different than voluntary insurance, that public policy considerations did not prevent coverage of intentional acts, and that the insurance terms should be interpreted in light of the intention of the compulsory insurance law. Many later cases in various states have taken the same position even in situations where insured persons committed serious crimes including murder.

It was also often stated that insurance would not pay if a homeowner intentionally burned down his or her house. Banks and mortgage holders were not willing to take on this risk and demanded coverage.  There are two types of mortgage clauses in homeowner’s insurance. The most common type today is the “union” or “standard” or “New York” mortgage clause, which would pay a mortgagee such a case. My own homeowners insurance (USAA) has such a clause stating:

If we deny your claim because you or any other “insured” has failed to comply with the terms and conditions of this policy that denial shall not apply to a valid claim of the mortgagee.

Standard insurance text books discuss this mortgage clause and point out that it is included specifically to pay lenders in cases of arson or other misbehavior on the part of the insured homeowner.  Because homeowners insurance is not mandatory, policies vary on whether they will pay to one owner when a co-owner burns down the house occupied by a spouse in a domestic violence incident.  This can hinge on details of the policy language such as whether it says “an insured” or “the insured” and illustrates the importance of requiring the right terms.

Other examples of insurance that pay to victims for criminal acts of policyholders or otherwise insured persons include worker’s compensation for acts of co-workers and often by employers, businesses for acts of employees and bonds by Locksmiths or fiduciaries.

The point of these examples is that liability and other kinds of insurance can pay innocent third parties for intentional acts of otherwise insured parties.   Mandatory firearm insurance should be designed like the examples above to protect the victims. Public policy, which is often said to prohibit such insurance, only prevents the malefactor from benefiting.  In light of these and of many other kinds of insurance that pay innocent parties regardless of the intent of others, there is no problem with public policy for providing insurance covering willful acts. It may, however, be appropriate for insurance regulators to allow insurers to have subrogation clauses to recover their money working against the misfeasors themselves.

Paths to Adopting Gun Insurance, General and Concealed Carry

While it would be best to adopt gun insurance in the United States by national legislation that puts into place a full blown no-fault plan with the “Top-Down” provisions to guarantee that it covers all of the millions of guns in the country, it is not necessary to wait until that is politically feasible to make progress in protecting victims.  There are several paths where an important part of this protection can be implemented both for it’s own value and to demonstrate the practicality of more complete plans.

The first and the one that already in the public eye is to adopt compulsory liability insurance for gun owners who are registered in particular states.  This is the plan that is being offered in state legislatures.  It would apply to a fairly small subset of the injuries and killings because it has no way to be in effect for illegal guns.  But, as the proportion of gun injuries from legally possessed guns is going up due to a downward trend of crime in general and a greatly increased spread of legal guns, it would have a substantial value.  It may very will be accomplished in some places in the next few years.  This is the type of adoption that is seen by most writers who suggest insurance in the mass media.

The most promising step by step path at this point starts with requiring insurance for concealed carry permit holders.  Because they are already registered in all but a very few states, there is not the privacy concern that applies in other cases.  It is also likely to be more acceptable because it only burdens gun owners with a clear and increased interaction with the community.  Because many state legislatures have adopted laws legalizing concealed carrying of weapons in recent years and because the problems widespread guns in public places have been made more clear by the killing of Trayvon Martin and the acquittal of George Zimmerman, this may be the most political feasible path. It is also an approach which will work well on a state by state basis.

This blog is planning to advocate for concealed carry insurance in this and the coming state legislative seasons.  To repeat the recommended provisions in the recommended legislation from the blog above, they will include:

  1. It should pay injured persons without the need for establishing negligence.  i.e. it should be no-fault insurance.
  2. It should cover economic losses, survivor’s needs, disability and pain and suffering and have a substantial death benefit.
  3. It should apply not only to the injuries caused by the legal carrier’s gun but to injuries caused by others including a criminal attacker during an incident involving the use of the covered persons gun.
  4. It should cover legal liabilities of third parties that arise from gun use incidents.
  5. Insurers should be required to report discountenance of the insurance to the permitting authorities 30 days before the insurance goes out of effect.
  6. Insurers offering homeowners insurance will be required to offer concealed carry insurance riders with exclusions and qualifications regulated by state insurance commissioners.

The way most analyzed in this blog is adoption of insurance with a sequence of structures that make it apply a larger and larger set incidents and victims.  This sequence which is detailed in other posts in this blog goes as follows:

  • Step 0 – Adopt laws clarifying the legal liability of shooters and gun owners.  This is needed for itself and for the effectiveness of liability insurance.
  • Step 1 – Liability insurance for guns.  Because this depends on fault by gun owners and the tort law system, it gives limited protection to victims.
  • Step 2 – Liability insurance with direct payment to victims.  This allows easy coverage of intentional acts and guns that are used by others than the owner.
  • Step 3 – No-fault insurance to protect victims.  This eliminates the need to use the tort law system and to establish negligence.  It can cover all of the injuries from legal guns but has no way to get the large number of incidents that are produced by illegal guns.
  • Step 4 – Insurance that covers guns with a “Top-Down” guarantee that is in place for lost, stolen or diverted guns.

Insurance at the Step 3 level exists in various states for motor vehicles and worker’s compensation insurance is designed to work at this level.  The need for the the last step is much less for these activities because regulation and registration of car owners and employers is nearly always available.

Opposition to Mandatory Insurance in 1929

It’s becoming clear that the underlying reason for insurance industry opposition to requiring insurance for guns is the latest move in a very old battle to keep the government out of regulating insurance and leaving the path clear for insurers to maximize their interests and profits.  In a fascinating book from 1929 presenting both sides of the debate Edison L. Bowers, its editor from Ohio State University, wrote in an introduction:

No large group of persons stands as sponsors for compulsory automobile insurance in any of its forms, although an association has been formed to promote the compensation insurance idea. As already suggested, however, there is a strong undercurrent of public opinion to the effect that something needs to be done to curb the growing menace of the automobile, and that compulsory insurance of some sort will help in that direction. The opposition, on the other hand, is much better organized and considerably stronger. Both the United States Chamber of Commerce and the American Automobile Association have declared against compulsory insurance in its present contemplated form. The latter organization opposes it particularly on the ground that such insurance would not prevent accidents, which end is the basic issue in the problem.

 

The strongest opposition comes from a source least expected. The insurance companies have definitely declared against compulsory insurance. Their attitude has added new fuel to the controversy. It has raised the old issue of the “vested interests” versus the public. … the private interests present the argument that legislation should never invade the realm of private enterprise, that any change contrary to the welfare of private interests is un-American, socialistic, and perhaps unconstitutional.[i]

By the time compulsory insurance was being adopted in New York State in 1956 at least 85% of the motorists in that state had voluntary insurance with almost no regulation of terms and rates.  The insurers were loth to allow a mandate which they were sure (and correctly so) would lead to regulation and especially regulation of rates.  This history indicates that the insurance industry is no friend of the public but it will bend to the public will when it is finally expressed and then will serve the public.

[i] Edison L. Bowers, “Introductory Note,” in Selected Articles on Compulsory Automobile Insurance: Liability and Compensation for Personal Injury, ed. Edison L. Bowers (The H.W. Wilson Company, 1929), 16.

Latest News on Mandatory Gun Insurance

June 25, 2013  Two new interesting OP/ED’s in NYT about guns and manufactures. Not insurance but with similar results
Finley, Lucinda M., and John G. Culhane. “Make Gun Companies Pay Blood Money.” The New York Times, June 23, 2013, sec. Opinion. http://www.nytimes.com/2013/06/24/opinion/make-gun-companies-pay-blood-money.html
Morgenthau, Robert M. “Let Shooting Victims Sue.” The New York Times, June 23, 2013, sec. Opinion. http://www.nytimes.com/2013/06/24/opinion/let-shooting-victims-sue.html
May 1, 2013  OP/ED by Paul Tetrault of National Association of Mutual Insurance Companies (NAMIC) claiming again there can’t be insurance for intentional acts.
April 10, 2013 New paper from Nelson Lund of GWU an important libertarian who supports gun insurance in principle but who thinks 2nd Amendment issues would narrow it’s application greatly.  Mandatory Liability Insurance for Firearm Owners: Design Choices and Second Amendment Limits.

April 5, 2013 Huffington Post Blog: Rep. Carolyn Maloney: “Inaction on Gun Safety: Unacceptable and Unaffordable.  Defends her two bills on Gun Trafficking and Gun Insurance.

April 4, 2013 What Am I Missing Here: “Mandatory Gun Insurance.”  Rant against insurance.  Blames III’s Robert Hartwig (no friend of gun insurance) as “insurance Mafia consiglierie

April 4, 2013 Forbes Blog: Personal FInance: John Wasik: “Gun Insurance: An Economic Argument”  Advocates Insurance, looks at current proposed legislation.

April 3, 2013 Rep. Carolyn Maloney Statement on Death Threats Over Legislation Requiring Gun Owners to Have Insurance

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Costs put on gun owners are not Poll Taxes

When a proposal for requiring insurance for guns is put into a blog discussion, many of the strong pro-gun advocates reacting to the post base their objection on rights as they assume they have them from the second amendment to the US Constitution. These assumptions can be very broad. And I see statements such as “what other rights do you have to pay for?” and “paying for gun insurance is like a Poll Tax.”

Well, I see us paying taxes on the means necessary to exercise a right all the time. Look at your phone bill, it’s full of taxes on a means to communicate. You have a right to travel, but pay taxes on cars and on air and rail tickets.

Poll taxes are really obnoxious, especially the way they were historically used, but they were not found to be unconstitutional until a specific amendment (The 24th Amendment to the US Constitution) was adopted. There is no similar amendment for gun rights. It’s interesting that rather heavy taxes for automatic weapons have never been found to be unconstitutional.

District of Columbia v. Heller is a very narrow decision in itself. It only overturns an extremely restrictive law that totally prohibits gun ownership. Later the court extended it to state laws in another case, McDonald v. Chicago. Since then lots of restrictions on gun use and ownership have been upheld by state courts. Whether the Supreme Court will strike a broader range of gun restrictions in the future is unknown. While lots has been written by legal scholars about the subject, the future path of this law will probably be determined by political considerations. Heller was supported by 5 justices with a strong dissent by 4 justices. It’s possible that it could be rolled back to the old view that any right to bear arms did not apply to individuals or it’s possible that it could be broadened.

As far as insurance is concerned, the system supported by this blog only requires regulations applied to the manufacturer of guns. Any requirement that the insurance be transferred to the subsequent owner, as would be needed to let the manufacturer’s insurer relinquish responsibility, would be a private contract.

50 Guns cross the line to illegal hands

On Jan 26, 2013 according to the Pennsylvania State Police 50 guns were stolen from the Taylor and Robbins Gun shop which had been closed for about six years but still had old stock on the location. Two burglers broke in and escaped in a vehicle.

Nearly all of the guns that are in illegal hands or used in crimes in the United States started out as legal guns and by some means passed out of the control of their legal owners. Many of these are due to purchases by straw buyers acting for an inelegible person but many others are due to loss or theft. If an insurance company was still responsible for these guns, it’s very unlikely that they would remain for six years in such a vulnerable situation.

We’re not taking guns seriously in this country, insurance is a big step to becoming responsible.