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Wednesday, December 26, 2012

Mandatory Firearms Liability: another soure, Forbes, has published a thoughtful article online

I hope our readers will read this, the new guest post (immediately below), as well as read what I've written on the topic on this blog and elsewhere.  I also hope readers will read and sign the White House petition started by a friend of mine to initiate mandatory gun insurance.

There are a lot of possible ways that liability could be implemented, and many possible ways in which improvements to reduce our gun violence could be accomplished. One of the ways the Forbes article differs from any of the other sources I've seen is that it also factors in taxation on the basis of relative risk in conjunction with insurance as a means of letting the invisible hand of the market and capitalism create pressures to reduce gun violence.

From Forbes:

Newtown's New Reality: Using Liability Insurance to Reduce Gun Deaths

We are all mourning now. Children should not be murdered in their classrooms. They shouldn’t be afraid that their teacher will be shot, as my 12-year-old daughter worries. Schools should not become armed camps.

Many of the low-hanging fruit approaches seem like no-brainers: Ban assault weapons, gun-show sales, multiple-ammo clips and require longer, more stringent background checks.

For the record: I’m not of the mind that every gun-owner is a threat to society nor should we restrict gun use for hunters, collectors and target shooters. My father owns guns, I have shot guns many times, have known people who were murdered by guns and witnessed a police shooting in 1981.

But I don’t think a widespread seizure of some 300 million American weapons will ever work. In fact, just mention “gun control,” and the very phrase shuts down conversation and invokes the vague rights and curse of the second amendment. Challenges to the constitution would never make it through the Roberts court, anyway.

What we can do is to look at gun sales through the lens of social economics.

Market-based risk pricing is the partial answer. Let’s agree that guns as weapons are inherently dangerous to society and owners should bear the risk and true social costs. Translation: Require both owners and sellers to purchase liability insurance that is universally underwritten by actuaries according to relative risk.


Given that gun violence, which kills more than 30,000 Americans annually, is harmful not only to our well being, but our economy, we should use economic disincentives to regulate its use.

What Other Countries Do

In relative terms, gun deaths are out of control relative to other kinds of fatal injuries. According to the Centers of Disease Control, absolute numbers don’t tell the whole story. Gun-related fatalities are nearly as high as traffic deaths, according to the Centers for Disease Control, at around 10 per 100,000 in population. In England and Wales, there were 39 gun-related deaths (in 2008-2009). You do the math.

Of course, in the U.K., Japan and other countries that have socialized medicine, guns are extremely difficult to obtain. That directly reduces their acquisition and misuse. Here’s what the Economist had to say recently about the U.K.’s gun control measures:

“After a couple of horrible mass shootings in Britain, handguns and automatic weapons have been effectively banned. It is possible to own shotguns, and rifles if you can demonstrate to the police that you have a good reason to own one, such as target shooting at a gun club, or deer stalking, say. The firearms-ownership rules are onerous, involving hours of paperwork. You must provide a referee who has to answer nosy questions about the applicant’s mental state, home life (including family or domestic tensions) and their attitude towards guns. In addition to criminal-record checks, the police talk to applicants’ family doctors and ask about any histories of alcohol or drug abuse or personality disorders.

Vitally, it is also very hard to get hold of ammunition. Just before leaving Britain in the summer, I had lunch with a member of parliament whose constituency is plagued with gang violence and drug gangs. She told me of a shooting, and how it had not led to a death, because the gang had had to make its own bullets, which did not work well, and how this was very common, according to her local police commander. Even hardened criminals willing to pay for a handgun in Britain are often getting only an illegally modified starter’s pistol turned into a single-shot weapon.”

 What About the NRA?

Will America ever have gun laws that come close to England’s? I think there’s a better chance of Ron Paul getting elected president. And every politician proposing new gun laws has to run the gantlet of the National Rifle Association and affiliated groups — and face the fear of not getting re-elected. But is the NRA really that powerful? Paul Waldman, writing in The New York Times online, cites research that shows that Americans aren’t afraid of new gun regulation:

“Gun advocates note that when surveys ask broad questions on gun control, more Americans say they are against it than for it. But that can’t be a result of our national debate. The last time we really debated the issue – in the 1990s – support for restrictions rose. But after the N.R.A. successfully convinced Democrats that they lost Congress in 1994 and the White House in 2000 because of the gun issue (contentions contradicted by the evidence), Democrats retreated from the issue in fear. So in recent years, the debate has sounded like this:

Gun advocates say Democrats are sending jackbooted thugs to take away everyone’s guns, and Democrats assure everyone they have no plans to do anything of the sort. So it’s not surprising that support for “gun control” has fallen.

But public opinion looks much different when you ask people specific questions. Polls show that majorities of Americans favor almost every restriction actually being proposed to set limits on gun ownership. For example, the General Social Survey has long found three-quarters of Americans saying everyone should have to get a permit from the local police before buying a gun. A Times/CBS News poll last year found 63 percent of Americans in favor of a ban on high-capacity magazines.” (bold is my emphasis added - DG)



So if Americans rose and demanded that public massacres were unacceptable, what kind of gun regulation would make it through the political sausage making? Outright bans are generally non-starters and it’s unlikely that the constitution would ever get amended because red states would never agree to dramatic restrictions.

Market Economics A Starting Point

When you buy a car, your insurer underwrites the risk according to your age, driving/arrest/ticket record, type of car, amount of use and other factors. A teenage driver behind the wheel of a Porsche is going to pay a lot more than a 50-year-old house wife. A driver with DUI convictions may not get insurance at all. Like vehicles, you should be required to have a policy before you even applied for a gun permit.  Every seller would have to follow this rule before making a transaction.

 This is where social economics goes beyond theory. Those most at risk to commit a gun crime would be known to the actuaries doing the research for insurers. They would be underwritten according to age, mental health, place of residence, credit/bankruptcy record and marital status. Keep in mind that insurance companies have mountains of data and know how to use it to price policies, or in industry parlance, to reduce the risk/loss ratio.

Who pays the least for gun insurance would be least likely to commit a crime with it. An 80-year-old married woman in Fort Lauderdale would get a great rate. A 20-year-old in inner-city Chicago wouldn’t be able to afford it. A 32-year-old man with a record of drunk driving and domestic violence would have a similar problem.

What about “straw purchasing” where someone buys a gun or gives it to someone else? The original purchaser not only would be required to have insurance, but would be liable for any violence committed with the weapons they purchased. The insurance companies could keep these records, which they are really good at doing. How do I know this might work?

Insurers have been doing this for centuries in underwriting health, auto, home and life insurance. Instead of charging the highest premiums for overweight smokers, alcoholics with bad driving records and dangerous hobbies, the most expensive policies will be priced for those who are younger with histories of mental illness, divorce, criminal records or severe financial difficulties.

In lieu of widespread bans and confiscation, most people in an industrialized society generally accept the need for insurance.
While I don’t necessarily think that insurance underwriting is always fair —  they often deny insurance to the chronically ill — it’s an economic way to address a horrendous problem. The point is, when you apply for insurance, you would give the insurer the right to search your health and financial records and actuaries would be able to develop risk factors and apply premium pricing. As I wrote in a Reuters blog last year, gun insurance could save a lot of lives, if applied universally:

“Risk-based pricing is fueled by a whole body of research that identifies who might be a victim in a gun crime or accident…Far too many kids are at risk: Some 90,000 children were killed by gunfire between 1979 and 2001, according to the Children’s Defense Fund. That’s almost twice the number of soldiers killed in the Viet Nam war. In fact, American children are more at risk from firearms than any other industrialized country.

If you think that the mandatory insurance idea is onerous, think again. You can’t finance a home mortgage without homeowner’s and title insurance. Want to buy a car? Most states require liability insurance. Forget about employing anyone in most states without worker’s compensation or unemployment coverage. As it stands now, only 22 cities and two counties in California require gun dealers to buy liability insurance, according to Law Center Against Gun Violence. It’s not known if any jurisdiction requires buyers to purchase liability coverage, although a state legislator in Illinois proposed such a law in 2009 (it was defeated). Note: the NRA itself currently endorses “excess liability” insurance for gun owners.”
 
While I don’t place much faith in government being a fair regulator of guns, I also think that a tax should be imposed on weapons sales based on the relative harm they can do, which is again employing risk-based pricing.
Want to buy a single-shot World War II rifle? You’d pay much less than a semi-automatic handgun with a multi-round clip. The tax would be used to pay for a database that would monitor and register gun sales. Also requiring a longer waiting period for a permit and requiring that three non-relatives sign character affidavits during the permit process aren’t bad ideas, either.
Of course, I’m not sure how to stem the underground trade of guns other than enforcing outright bans on unregistered weapons. Nor will my concept keep guns away from criminals; insane people may still find a way to get around buying insurance and sidestepping the underwriting. But it will raise the bar for the liability threshold. It will cost you dearly — or prohibit you from getting insurance and a gun — if an insurer deems you uninsurable.
Insurance will more effectively price the risk and costs of social harm. I know that this falls short of getting rid of the most dangerous weapons, but we have to start somewhere. We just can’t afford to see any more Auroras, Columbines, Tucsons and Newtowns.

3 comments:

  1. I think that the insurance angle is one of the best ideas I've read so far in the attempt at curbing this obsessive gun culture in America. I've often wondered about the liability after a gun death. Think of the burial expense [beyond the grief] of each of those young families in Newtown. Who paid for the burial services?

    Thanks for bringing this to our attention!

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  2. Last I heard, a number of NFP orgs and some ad hoc groups were trying to raise funds to defray all of the expenses incurred by the families, including burial expenses.

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  3. I have thought about this concept since the White House petition was started ... and see more questions than answers.

    First, did you know that all NRA members in good standing receive $2,500 of ArmsCare protection at no cost to them (assuming they activate the benefit).

    Which prompts the question, how much ? and do you already have some coverage through other insurance policies ?

    If someone sues you because they are hurt by a gun on your property, the prudent individual will want to have additional coverage ... and the NRA has an optional "Endorsed Excess Personal Liability Plan" which protects you while shooting in competitions or at private shooting ranges. Further, it provides coverage for bodily injury or property damage caused by the use of a firearm, airgun, bow & arrow or trapping equipment when you are legally obligated for damages. It pays most defense costs in addition to liability limit -- even if lawsuit is false with ranges from $100,000 worth of insurance costs just $165 per year; $250,000 worth is $254
    Alternatively, comprehensive firearms liability for holders of Conceal-and-Carry licenses is available from other companies. It is different in that it will reimburse criminal defense costs and also apply to civil liabilities. Once again, the minimum limit is $100,000 and maximum of $ 250,000.

    Yet, my understanding is that insurance companies will only cover a claim where the firearm was legally used ... so if a crime was involved, the insurance company has no obligation. Thus, consider the Little Falls case ... even if the owner had insurance, if it is ruled that he used excessive force, they pay nothing.

    That line of thinking is listed in a recent Daily Beast article.
    Take five minutes and read the Daily Beast article and you too may come up with more questions.

    Ignoring the questions of whether a Mandate could be enacted in today's political world, and whether people already have some liability insurance already, there is the fact that insurance companies are in a profit-making industry. Insurance companies will serve the markets they want ... there have been reports that at least one insurance company has declined to sell liability insurance to Minnesota businesses that permit guns on their premises. As the Daily Beast article implies, "all drivers" pay for uninsured motorist protection in order to protect our vehicles ... will "all gun-owners" want to pay for those that fail to maintain insurance?

    The likelihood of Federal action is remote considering the make-up of Congress and instead, I would suggest action at the Minnesota state level. The Conceal and Carry Permit process should be changed to require comprehensive firearms liability for a minimum of what would be paid if a Minnesota State law enforcement official died in performing his/her duties ... $323,035.
    Second, considering the "demand" has increased for Conceal and Carry Permits, take advantage and raise the "fee" from a maximum of $100 to $200 ... and cut the license period from five years to one year for renewal and change the renewal fee from $75 to $100.
    Somehow, I think that my Representative will not be in favor of these changes ... but do you think any Member of the Legislature would be willing to propose any changes ?

    FYI : MN Post has a story that may interest you.

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