Congresswoman CarolynMaloney has introduced a bill that would require gun buyers toprovide proof of insurance before being allowed to purchase aweapon. The bill will impose a $10,000 fine if the gun buyer isfound not to have the coverage. Servicemen and police officerswould be exempt.

|

The goals for her bill include:

|

1. Allowing the insurance industry to encourage cautiousbehavior through pricing and underwriting.

|

2. Ensuring that victims of gun violence are fairlycompensated.

|

Critics of the bill have been quick to point out that insurancecontracts exclude intentional acts. They state that only about 2%of gun violence is accidental, making the bill ineffectual.

|

However, some intentional acts are covered by insurance. Infact, there doesn't appear to be a reason for “gun insurance”policies to exclude intentional acts. Even the National RifleAssociation (NRA) is marketing coverage for individuals whoinjure or kill someone in an act of self-defense.

|

Our industry should at least have a discussion about thecontracts that could be written to provide reasonably assumedcoverage.

|

Some individuals suggest that the annual cost of gun violence in the U.S. is $229billion. This total can be compared to the economic loss of about$1 trillion annually due to auto crashes. Much of that $229 billionis truly a societal cost that is inherent to the preservation ofthe Second Amendment. If we attributed even a tenth of that cost tothe gun owner's culpability, we would be looking at annual writtenpremium of approximately $35 billion for “gun insurance.”

|

Can we easily dismiss the creation of a new, legitimate $35billion insurance industry segment without at least somediscussion? We have an industry that has much more capital than isprudent. We should be looking for new revenue models and notrejecting them out of hand.

|

It would seem logical that the policy would have to be statutorycoverage, much like workers' compensation, with a similar payment*schedule. For example:

  • A wrongful death payment of $250,000 for those killed ingun-related crimes.
  • An average payment of $100,000 for those injured.
  • A payment to the local law enforcement jurisdiction of $15,000for each gun-involved crime (much like fire department servicefees).
  • An average payment of $10,000 to those victims of crimesinvolving guns, who were not injured.

*Payment would not preclude any other rights to financialrecovery. However, any settlements in other suits would firstreimburse these payments.

|

|

businessman holding a revolver

|

(Photo: Thinkstock)

|

A logical law would require all gun owners to purchase andmaintain coverage. However, the main enforcement would be proof ofinsurance required at the time of purchase of a new gun. Should aperson be apprehended for a crime involving a gun and not haveinsurance, or sells a gun to a person without insurance, thatperson would be subject to a fine. Should a person be found to bewithout coverage, but hasn't been apprehended for a crime, theperson would be charged with a misdemeanor and subject to a $50fine.

|

Given the above payment schedule, a 25% expense ratio, anda 25% surcharge to account for adverse selection, premiums wouldrange from approximately $175 to a high of about $2,000. It'sfairly certain that adverse selection would be minimal, becausecriminals more than likely would not buy “gun insurance.”

|

The insurance company would need to develop logarithms thatcharge more for insurance if the person approximates the profilethat has been asserted for mass shooters.

|

For example, a female in her 40s who owns one .22 rifle, whodoes not have any special permits, such as open-carry, who lives inan affluent rural area would pay less than $200.

|

She might elect not to carry the coverage, because she does notbelieve she will ever purchase another gun, and is notgoing to use her gun in a crime. The majority of gun owners wouldfall into this classification. Since the risk of being caught wouldbe minute and the penalty so light, the decision to carry would bepersonal. Many would voluntarily buy the insurance.

|

In fact, it would be logical for the NRA to market it along withtheir current offerings. This policy would have the additionalbenefit of covering all shootings so that you wouldn't have toprove it was self-defense to activate coverage.

|

Another example of someone who would qualify for a low premiumwould be a male in his 70s who lives in a small town, who has over300 guns in his collection, including many antiques. His creditscore attributes show him to be very active in his community.

|

At the other end of the spectrum would be a male in his late20s, who has six guns, including a Glock. The Glock ranks asolid first place in criminal weaponry in the119,000 guns found at crime scenes in 2012. He lives in a poor,urban area. He has had a variety of jobs, none lasting more thanfour months. He lives in his parents' basement, and his creditscore attributes that would suggest an anti-social life. He wouldpay $2,000.

|

I have enormous respect for the use of proxy variables inproperly pricing private passenger auto insurance. Consequently, Ihave great confidence the industry would very rapidly figure out away to model antisocial tendencies.

|

The insurance industry would need catastrophic reinsurance fromthe federal government to prevent them from unexpected lossesduring the first two years. After that, the free market would takeover entirely.

|

There are over 310 million non-military firearms in the U.S.,which suggest many people own multiple firearms and will be activepurchasers, thereby needing the insurance coverage.

|

For the last several years, psychologists have suggested that ifwe could pinpoint those with certain attributes and make sure theyget help, society could avoid many of the mass shootings that haveoccurred.

|

Large premium discounts could be given if people buying theinsurance attend loss-avoidance classes and submit toscreening. Ways that data would be transmitted to those whocould work to prevent possible future calamities would have to beworked out within privacy laws.

|

I'm not a constitutional lawyer. I do understand that the NRA isa huge marketing organization with somewhere between three and fivemillion members. They appear ready to fight any measures that theybelieve will deter gun sales.

|

However, in this case, I believe such a law would be a goodopportunity for the United States and the insurance industry.

|

For further discussion of this topic, see Could Gun Insurance Reduce Gun Violence?.

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

  • All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
  • Educational webcasts, resources from industry leaders, and informative newsletters.
  • Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.