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.
The separation of the risk of loss of control of the gun and the risk of injury after a gun is diverted or stolen is helpful to the encouragement of good gun safekeeping. It is less desirable from the viewpoint of society if reinsurers rather than charging premiums for each case would take on all of the risk for certain segment of primary insurance business. This would dilute the responsibility of the primary insurer for demanding and enforcing safe storage practices and prevention of improper transfer by gun owners.
The premium charged by a reinsurer to take on the responsible for a stolen gun is likely to be quite large compared to the premium charged by the primary insurer. While insurers will take great pains to reduce the number of cases in which it must be paid, these premiums will be a substantial part of the cost of gun insurance. A major business in selling this reinsurance is likely to result. A few large companies taking this business will have the means and necessity to sponsor research in order to provide an improvement in the ability to assess and measure this risk in various situations. This will indirectly provide a great service to the public because such research has been almost eliminated from governmental and academic sources.
Ideally, insurers will require gun owners whose guns escape their control to pay a substantial portion of the reinsurance premium. Such a requirement would make gun owners aware of the seriousness of having their weapons get into improper hands.
While the average “Time to Crime” reported by the ATF for traced guns is quite long at 11.2 years it’s defined to mean the time from the first retail purchase to the request for tracing received by the ATF. It can be a much longer period than the time measured from a diversion or theft. It’s likely that guns in illegal hands have a much shorter lifespan than guns owned legally. Once a gun is seized by law enforcement or perhaps destroyed by criminals to cover its use in a crime, it is no longer a risk to insurers.
Support for insurers with limited capital and a large customer base
Reinsurance will also have its more usual roles in handling the needs of insurers for limiting the scale of their risks. Certain companies with the trust of gun owners, perhaps because of a relationship with the NRA or other gun organizations will have the ability to sell insurance to large number of customers. If this situation is not combined with sufficient capitalization to meet the standards of insurance regulators in various states, the usual way to handle the need is for the insurance company to transfer a portion of the risk to a reinsurer. This type of reinsurance can be called proportional or treaty reinsurance and is very common in many areas.
Guarantee of ability to handle mass shootings
Another type of reinsurance that would be more specific to the gun insurance situation is excess of loss reinsurance. That is also very common and allows the insurer to transfer the risk of a particular loss being too large for the insurer to handle. While major single losses such as would occur in a mass shooting using an insured gun represent only a relatively small part of the risk of an insurer the concentration may make them problematic. The reinsurer would contract to pay any loss in a single incident over some amount such as one million dollars. If a liability component with no per incident limit is mandated as part of an insurance mandate package, this is especially important.