Congresswoman Carolyn Maloney has introduced a bill that would require gun buyers to provide proof of insurance before being allowed to purchase a weapon. The bill will impose a $10,000 fine if the gun buyer is found not to have the coverage. Servicemen and police officers would be exempt.

The goals for her bill include:

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

2. Ensuring that victims of gun violence are fairly compensated.

Critics of the bill have been quick to point out that insurance contracts 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. In fact, there doesn't appear to be a reason for “gun insurance” policies to exclude intentional acts. Even the National Rifle Association (NRA) is marketing coverage for individuals who injure or kill someone in an act of self-defense.

Our industry should at least have a discussion about the contracts that could be written to provide reasonably assumed coverage.

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

Can we easily dismiss the creation of a new, legitimate $35 billion insurance industry segment without at least some discussion? We have an industry that has much more capital than is prudent. We should be looking for new revenue models and not rejecting them out of hand.

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

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

*Payment would not preclude any other rights to financial recovery. However, any settlements in other suits would first reimburse these payments.

businessman holding a revolver

(Photo: Thinkstock)

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

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

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

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

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

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

Another example of someone who would qualify for a low premium would be a male in his 70s who lives in a small town, who has over 300 guns in his collection, including many antiques. His credit score attributes show him to be very active in his community.

At the other end of the spectrum would be a male in his late 20s, who has six guns, including a Glock. The Glock ranks a solid first place in criminal weaponry in the 119,000 guns found at crime scenes in 2012. He lives in a poor, urban area. He has had a variety of jobs, none lasting more than four months. He lives in his parents' basement, and his credit score attributes that would suggest an anti-social life. He would pay $2,000.

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

The insurance industry would need catastrophic reinsurance from the federal government to prevent them from unexpected losses during the first two years. After that, the free market would take over entirely.

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

For the last several years, psychologists have suggested that if we could pinpoint those with certain attributes and make sure they get help, society could avoid many of the mass shootings that have occurred.

Large premium discounts could be given if people buying the insurance attend loss-avoidance classes and submit to screening. Ways that data would be transmitted to those who could work to prevent possible future calamities would have to be worked out within privacy laws.

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

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

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

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Framing the discussion around gun insurance

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