The Role of Reinsurance in Mandated Gun Insurance

A gun insurance system designed to encourage safe practices will need to maintain insurer responsibility for lost, stolen or improperly transferred guns. This is essential also to using continuing insurer responsibility as the means of guaranteeing coverage of all guns once they enter the system. Insurers will face risks that continue into the indefinite future for guns whose location is unknown. Specialists in assessing these risks will be needed to encourage the sale of this insurance. This is often done by specialty reinsurance companies in various areas in our economy.

Reinsurance is the practice of insurers buying their own insurance from other companies and thereby transferring part of the risk out of their hands.

Separation of risk after loss or theft

The primary insurer will be able to treat their risk as that of having to buy reinsurance in the event that the gun owner loses control of the insured gun. As the specialty reinsurers establish a market with prices and terms for assuming the risks, the primary insurers will become able to view themselves as selling insurance for the risk of having such a loss of control of the gun. This attitude on the part of insurers is just what is needed to have them take the best role in demanding safe practices. They will put terms in their policies that are designed to stop guns from straying and, thereby, protect the public from the effects of stolen and diverted guns.

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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.

Insurance Companies and Guns: What Would It Be Like?

Many people who can see the need to protect persons injured by guns and can see the parallels for responsibility to motor vehicles have a problem with involving insurance companies.  Writing recently in a diary about possible system for requiring insurance on guns, one of the most common concerns was a distrust or even hatred of insurers.  This is understandable because insurance companies often deny claims or access to insurance; and denial is likely to be harmful and very upsetting to the person denied.  In so many areas, insurance coverage is required in one way or another and is a barrier to people getting on with their lives.  Nevertheless, insurance is necessary and it matters greatly how it is implemented.

So the question is how would the insurance experience for gun owners work out?

The system I am envisioning in my writing requires insurance to be purchased by manufacturers or importers in such a way that, to relieve an insurer of responsibility, each successive owner must take over or provide new insurance.  If the gun is lost, stolen or diverted the responsibility stays with the current insurer.  This is critical because the primary danger lawful owners make to the public is they may lose control of a gun.  An important advantage of this system is that the government only has to regulate or even know about manufacturers, importers and insurers.  There is no need to register privately owned guns for this to work.

The legislation needed to mandate insurance would prescribe the types of incidents that would be covered and the requirements for payment.  It is very important that it be a no-fault system for two reasons, the situation in many shootings is so unclear that, even if it’s obvious there must be some kind of fault, proving it can be very difficult and protecting the privacy of gun owners is very important.  This gives insurers much less room is denying claims than in other kinds of insurance.  No-fault insurance for automobiles works well in many states, but the comparison of cars to guns is to the Personal Injury Protection (PIP) coverage that’s part of many state systems as it applies to pedestrians, who often don’t have their own insurance.  For examples, see Florida and New York.

For the purchasers of gun insurance, it’s likely that there would be substantial competition about rates.  Gun selling businesses would work hard to make good and economical carriers available to their customers.  Because the rates would probably vary significantly for customers in different situations, with different styles of storage and use and for different types of firearms, the insurers would be competing on convenience and privacy as well as price.

The big costs for automobile liability insurance claims are injuries and property damage rather than fatalities.  Because guns are involved in only about 2.5% as many injuries as motor vehicles, the average cost would be low.  Very generous benefits would have an average annual cost to insurers of less than $40 per gun.  Limits similar to a less generous plan such as Florida’s PIP would be less than one quarter of that.  These are averages; and particular situations would have higher or lower costs.  In particular, guns that have been in the possession of owners for substantial periods have a much smaller chance of turning up in shootings later.

NRA Liability Insurance vs. Complete No-Fault Insurance Costs

The NRA offers liability insurance for gun owners.  With the $100,000 limit and self-defence coverage the cost is $180.00 per year.  It only covers liability after the injured person wins a law suit and has many exclusions.  The self-defense part is by a separate endorsement.  It is excess liability so if the gun owners homeowners insurance pay NRA insurance will not.  It does, however, cover the individual owner and any number of guns owned or used by that person.

The calculation in the post on this Blog Gun Insurance Would Not Be Expensive shows Continue reading

Gun Insurance Would Not Be Expensive

                Getting an approximate estimate of the cost of Gun Insurance that would protect everyone is important even though the parameters of an insurance system have not been developed.  In many ways, the wide experience with automobile insurance will serve as a model for the system to come.  There are available sources for the numbers needed to make an estimate if one assumes a certain level of coverage and benefits.

The Insurance Information Institute publishes overall numbers for automobile insurance.  The particular items that interest us are for private passenger automobile insurance (excludes commercial):

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