I have to admit that’s not a question I thought I’d ever ask. But that scenario could become reality, if some proposed legislation passes and becomes popular in multiple states. What brings it to mind are two recent articles: one in A.M. Best’s BestWeek, Feb 4, 2013 edition, titled “State Bills Draw Fire,” and one in the New York Times, Feb 22, 2013 edition, titled “Buying a Gun? States Consider Insurance Rule”. Currently, California, Connecticut, Maryland, Massachusetts, New Jersey and Pennsylvania are considering legislation that will make it mandatory to buy liability insurance for gun ownership, much to the chagrin of the NRA. Similar legislation failed just last year in Illinois, where the proposed legislation would require $1 million in coverage. Can gun insurance change the current environment where hundreds of thousands are injured every year by gun incidents?
If this type of required coverage becomes the norm throughout most of the country, I think it just might. Why? The impact that insurance has had on other aspects of modern life. The BestWeek article compares firearm insurance to auto insurance, and this is a fairly apt analogy. The auto insurance industry has had an impact on safety standards in cars and on the road. People consider how they drive to avoid higher premiums – trying to avoid tickets and accidents – and the advance of telematics in auto insurance is continuing this trend by directly tying premium to both driving habits and usage. Insurance advertising has addressed risky behavior such as texting and driving, and premiums/deductibles are linked to safe driving programs. If insurers are selling firearm insurance, similar programs to encourage responsible firearm ownership and handling would most likely proliferate. If auto insurers can help to reduce unsafe behavior as texting while driving, could firearms insurance (and associated education programs) help to reframe attitudes on gun ownership and use? This would include attitudes such as the mindset that led Plaxico Burress, the former NY Giants football player, to think that it was a good idea to have a loaded pistol in his pants while frequenting a popular nightclub – resulting in a much publicized, public, self-inflicted gunshot wound to the leg.
From a growth and maturity pattern, another line of business that firearm liability might resemble is professional liability insurance. In the 50’s and 60’s, professional liability was a quiet line of business that provided reasonably priced coverage for lawyers, doctors and other professionals. Premiums were affordable, claims were infrequent and insurers would defend the professional’s reputation to the bitter end. Then the 70’s came. Plaintiffs’ lawyers found that there were deep pockets associated with professional liability lawsuits and professional liability coverage exploded. The severity and the frequency of claims skyrocketed and resulted in dramatic changes not only to the line of business (invention of claims made policies, defense in the limits and limits to the duty to defend), and to the professions that they supported.
If firearms liability becomes a real line of business, it will go through a similar evolution. Today, liability associated with non-criminal, unintentional firearms related losses are covered by both homeowners and umbrella policies (self-defense shootings being “intentional” are generally excluded but that varies by jurisdiction). If litigation and awards associated with firearm-related losses becomes significant – coupled with the development of a new firearms line of business – exclusions will quickly follow in both homeowners and umbrella policies.
While gun makers have been protected by statute (something the tobacco industry must envy tremendously), gun owners themselves don’t have similar protections. With 600 accidental (non-criminal) firearm deaths and more than 200,000 non-lethal firearm injuries per year, there are enough incidents to keep legal teams busy. Why haven’t claims or lawsuits for firearm related losses not taken off yet? Two possibilities are the belief that substantial awards might not be present (something mandatory insurance will change) and a lack of desire by the injured parties. After all, if you’re shot accidentally on a hunting trip, do you want to sue your best friend?
If firearms insurance becomes a real market, and this is only likely to happen if forced into play by legislation, claims and lawsuits will result. If you build it they will come. There have been questions on where the capacity will come from. If the market is there, insurers will create capacity – after all, even bedbug insurance has been able to find capacity (marketed by highly respected Willis and Aon for example). I have little doubt that mandated firearms coverage will find a market.
Will this legislative trend actually develop steam, though? That remains to be seen and will depend mostly upon the success of the legislation in play. Insurers who want to be successful in this market will need to be flexible. There isn’t a lot of data to build underwriting or actuarial models on. The key is to have full visibility into how the line of business is developing and be able to adjust pricing, underwriting requirements/processes and claims processes near real-time. Firearms insurance would be a natural choice for leveraging predictive and adaptive analytics to monitor and react to developing results. If the claims and lawsuit volume increases, similar to what happened with professional liability insurance, insurers will need to be ready to take this into account in their underwriting and pricing models. The one major benefit that firearms coverage has over professional liability: the claims tail should be a lot shorter, and insurers will know immediately when a loss event occurs.