liability insurance

Can U.S. insurers stop gun violence?

February 21, 2013: 10:59 AM ET

Liability insurance might be touted as a magic bullet to reduce gun deaths, but it's unlikely to make a big difference.

121107045227-election-guns-gallery-horizontalFORTUNE -- U.S. insurers have helped discourage smoking and have even made driving safer, but can the industry also make America a less violent place?

It's a tall order that would ask insurers to change the way they do business, but a handful of state lawmakers think so. Since December's tragic shooting at Sandy Hook Elementary School in Newtown, Conn., state lawmakers have turned to liability insurance as an economic way to ease the horrendous problems of guns and violence.  This month, California proposed a law that would require gun owners to buy liability insurance, which would cover damages or injuries caused by their weapons. The state joins Connecticut, Maryland, Massachusetts, Pennsylvania, and New York, which have proposed similar bills.

Until this week, the insurance industry had been pretty mum about the proposals. The American Insurance Association, a property-casualty trade group that represent about 300 insurers, said on Tuesday that requiring gun owners to purchase liability insurance would do more harm than good.

"Even if insurance could be written for gun crimes, it could have the opposite of its intended effect," the group said in a statement released Tuesday. Such laws could lead to recklessness by gun owners who have little to lose in the way of income, assets or property.

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Insurers clearly resist the idea. And in a way, it speaks to the severity of America's problems with guns. It will be worth watching whether public pressures over the gun debate will force the industry to change the way it writes policies. Even if the laws pass, insurance companies aren't obligated to offer that type of coverage, opponents from the industry say.

What's behind the push for liability insurance is to make it more costly and therefore harder for people to own guns. That might very well happen, but it might do less to ease any fears of another Sandy Hook. The shooting was a deliberate act of violence, not an accident. U.S. insurers typically compensate accidents, but the industry generally doesn't cover intentional acts, says Robert Hartwig, president and economist at the Insurance Information Institute.

"None of the [proposed] legislation out there makes that distinction," Hartwig says.

Nonetheless, insurance would be a good idea to compensate victims of gun accidents. Say on a hunting trip a gun accidentally goes off, similar to the freak accident involving former U.S. Vice President Dick Cheney in 2006. Likewise, if a gun accidentally fires off at a private home, the liability part of a homeowner's insurance policy would compensate the victim.

The reality is that the bulk of deaths from guns is not entirely accidental. In 2010, nearly 20,000 of the 30,000 deaths from guns in the U.S. were suicides, according to the latest figures from the Centers for Disease Control and Prevention. And so, as opponents of liability insurance argue, it's hard to see whom the insurance would pay out.

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Nonetheless, economists have come up with the price of owning a gun, as University of Michigan economics professor Justin Wolfers recently noted to NPR . It's not just the actual cost of buying the weapon, but there's also what economists call "social costs" -- the price of grief and loss that might follow if the gun were used to take the lives of innocent people. This could run anywhere between $100 and $1,800 per year for a gun-owning household, Wolfer writes, citing a 2005 study.

Liability insurance might compensate for such costs, but it's also hard not to wonder if the most violent criminals that own guns would even register their weapons anyway, much less buy liability insurance because the law says so.

Regardless, liability insurance could reduce accidents -- owners who store their weapons safely would pay less for insurance, as Massachusetts State Rep. David Linsky said when he introduced a bill in January to fine or jail anyone found in possession of a gun without insurance.

As Wolfer suggests, liability insurance might have made a difference in the Sandy Hook shootings.

"It's the sort of careful solution that would enable people who enjoy hunting to continue with their passions but also push them to take the sorts of precautions that we all wish the Lanza household had taken," he writes.

Could insurers eventually agree?

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