One... MILLION Dollars!

The state of New York has an idea to reduce gun ownership: make every gun owner carry a million-dollar insurance policy.

Well, it's not a new idea. We've talked about this before, both here and at the now-defunct Winds of Change. Then as now, gun-haters were sure that the expense of such a policy would cripple interest in guns. The truth is, if such policies were widely offered, they'd be pretty cheap.

I have a million dollar liability policy as part of my homeowner's insurance. The cost of this policy is a few tens of dollars a year -- on the order of thirty bucks. I spend more on coffee, monthly, than I do annually on this policy. And that is in spite of the fact that this covers a wide degree of risks, everything from 'slipped on the ice on your walk in the winter' to 'chose to climb a tree on the back 40 and broke my leg.' It covers you if you get burned on my fireplace, or if a roofbeam should fall on your head. Lots of stuff is covered.

The gun policy they're proposing only covers one thing: if I should shoot someone and get sued for it.

Let's run through that in very round numbers to make the math easy. Now there are 300,000,000+ guns in America, owned by around 100,000,000 households. There are just around 100,000 gun injuries or deaths a year. Two-thirds of gun deaths are suicides. Those that are intentional homicides wouldn't be covered by insurance policies because they are crimes, and you can't insure yourself against the consequences of intentionally committing a crime. Only the rare accidental shooting (489, or about half of one thousand in 2015), or a lawful self-defense that resulted in a successful lawsuit, would be covered.

So we've got around 500 annual accidents in a nation of three hundred million guns; assuming all guns were equally likely to cause that injury, and a 100% probability of the insurance company having to pay a claim over it, then the probability that your insurance company has to pay a claim is about .000016. Add in estimated defensive gun use, and there's another group of guns you'd have to insure, but again it's divided over 300,000,000 guns owned by 100,000,000 households. Estimates for how often guns are used defensively vary widely, but the low side numbers are all from the gun-control side; if they believe their own numbers, it's going to be a vanishingly small number of incidents that need to be paid out.

It's a million-dollar policy, but the average cost of a gunshot wound is only $150,000. Assuming that adding in the defensive uses to the accidental shootings fully doubles the number of payoffs, then we've got $150,000 x 1,000 incidents, or $150,000,000 in annual payouts. Divide that by 300,000,000 guns, and we'll need about fifty cents a gun to cover that.

So, if you own six guns, that's three dollars a year. Of course it'll be a bit higher, because the insurance company would have operating costs. But it's not going to break the backs of the firearms injury, even if it survives constitutional review.


J Melcher said...

This could also be a natural economic experiment; one worth doing.

One risk of having a firearm (or an "arsenal" [1]) is theft of that property. Evil doers might have an incentive to rob or burgle dwellings they know have firearms, because such dwellings contain a more valuable and portable thing to steal. So an insurance policy issued to cover this risk costs more.

One benefit of having a firearm is deterrence of robbers, burglars, and thieves. Evil doers in these lines have an incentive to AVOID dwellings they know have firearms, because such dwelling contain a defender and have a non-zero chance of inflicting retaliation upon the thief.

From a purely theoretical perspective, it's difficult to tell which incentives and risks would dominate.

But if some companies offered a slightly lower premium to homes owning guns, and others imposed a slight higher premium, and a million or so customers assessed their own needs and did their own calculations, while a hundred or so incidents were assesses and built into the after-action calculations of the insurance company actuaries -- it might become clear what is actually going on.

I think it might be worth doing in some well-populated state. Texas, for instance.

[1] "Arsenal" -- a collection of at least 1 rifle, 1 shotgun, 1 modern pistol, and 1 working heirloom firearm, with ammunition for each piece.

Christopher B said...

This goes along with AVI's comment a few posts back about certain people not liking or understanding numbers. They have concept of how to derive a price of a financial instrument so $1,000,000 is just A. Really. Big. Scary. Number.

Texan99 said...

Aside from my concern that the requirement would inevitably be gamed, I haven't got a serious problem with it. We make people carry insurance for driving around in their dangerous cars, or for using explosives. Like you, I've carried at least $1MM in umbrella personal coverage as long as I can remember, though I've never had a claim on it.

On the negative side: In theory, juries can't be told that a defendant has insurance coverage. In practice, their deliberations can be skewed by an assumption that they're awarding monopoly money. The presence of insurance coverage also is catnip to unscrupulous PI lawyers. Any consideration of insurance policy needs to take tort reform into account, especially in a politically charged area such as gun ownership where organizations inevitably will raise money to target anyone involved in a shooting.

james said...

I concur--this wouldn't be treated as "insurance-insurance", but as "tax-revenue-enhancing-insurance" or "social-policy-influencing-insurance." The actual risks would bear no relationship to the costs, and there might be additional tweaks for who gets to buy the insurance.

james said...

On a probably-related topic--how many city fireworks shows have stopped because the city can't afford the insurance?

Grim said...

It's true, of course, that politicians can make insurance unreasonably expensive. Anyone who buys health insurance on the Obamacare exchanges knows that, to their great pain and sorrow.

ColoComment said...

Walter Olson (at Cato & at his Overlawyered blog) points out an interesting discontinuity between this proposed law and recent NY sanctioning of two insurance firms & the NRA:

ColoComment said...

Also, your pointing out the problematic math encompassed in this proposal reminded me of this recent Ramirez cartoon, sent to me only this morning by a friend.

Math is hard, esp. for Dems.

Christopher B said...

Obamacare is expensive due to three things

1) Forced coverage of pre-existing conditions (you don't have to buy til you get sick)
2) Overly broad benefits (birth control for men)
3) Cost sharing requirements across age groups

None of those are really applicable in this case. While it's certainly possible that insurance companies may treat these policies as a cash cow and the NY insurance commissioner may letvthem, there are going to be some limits. Liability insurance isn't a new thing.