Comment: Insurance required for cars; require for guns, too

By Jason Abaluck and Ian Ayres / Special To The Washington Post

A breakthrough on potential new gun regulations is welcome news, but the recently announced proposals from a bipartisan group of senators are striking in their narrowness. They include incentivizing states to pass more red-flag laws, improving background checks for buyers younger than 21 and widening the group of sellers required to register as federal firearms dealers. Better than nothing, these reforms nonetheless would address only a small fraction of the more than 45,000 gun deaths and 120,000 gun injuries that occur each year in the United States.

The modesty of the ideas on the table is a byproduct of intense polarization over gun rights, suggesting a need for new approaches. One possibility — long advocated by some economists — is to require gun owners to purchase liability insurance. This would create a several-hundred-billion-dollar incentive for insurers to find ways to reduce gun violence. Relative to other regulations, this requirement might even appeal to some gun rights advocates. The National Rifle Association wouldn’t support it, of course, but it might win support from conservatives looking for a market-based approach that wouldn’t have much impact on responsible gun owners.

Gun insurance would accomplish two goals: First, it would raise the cost of gun ownership for people whose firearms are deemed relatively more likely to be used in crimes (by themselves or others), based on an assessment of risk factors made by insurance companies. That would make those people less likely to obtain guns in the first place. Second, it would provide a strong financial incentive for gun owners to keep these weapons out of the hands of people who might commit crimes with them. Granted, mass shooters won’t be concerned about their future premiums; but many owners would take steps to ensure their weapons are well secured. And a 21-year-old with a history of violent behavior might find it much harder to obtain a gun if insurers insist that they pay premiums equal to several times the purchase price of a weapon. (Insurance would be a condition of ownership.)

The logic is analogous to that underpinning car insurance. If you drive a car, you may seriously damage another person’s property or even kill them. To discourage reckless driving, the law makes you legally liable should this happen. For most people, the potential liability exceeds their savings, which is why all 50 states require car owners to buy car insurance so payments can be made in the event of an accident.

In the case of guns, insurance would work similarly: If a gun you own were used in a crime (by you or someone else), you would be liable for the cost of that crime. The liability could be tens of thousands of dollars in the case of a robbery or tens of millions of dollars in the case of a mass shooting. To minimize legal costs, these liability amounts could be set by a regulatory agency, paralleling the workers’ compensation program. Gun owners would need insurance to guarantee their ability to pay, and insurers would set the premiums. They would set those rates based on obvious factors like age or past offenses as well as less obvious ones that they discover. (Perhaps Rotary Club members are 80 percent less likely to commit crimes.) Premiums would still be subject to anti-discrimination laws, so they could not vary systematically with race.

Liability insurance is not a substitute for other gun regulations, but it would supplement them nicely. Insurance companies would be motivated to conduct effective background screenings before agreeing to a contract that could cost them millions if they missed something. They would do this research even in circumstances where such checks are not currently required, as when firearms are purchased from private dealers. Insurers might give discounts to gun owners who show that they have purchased gun safes even in jurisdictions that don’t require them, and people whose guns were used in crimes would face high costs when obtaining another, unless they could prove to insurers that the same thing won’t happen again.

Economists like the idea of mandatory gun insurance because it attacks the problem of “externalities”: impacts on other people that aren’t part of the usual cost of a good or action. Absent regulation, for instance, why should a factory owner care if producing steel generates air pollution? The classic solution is to tax each unit produced by factories an amount equal to the environmental damage each unit causes. Steel production will continue, but it will be constrained not just by demand for the product but by the cost of environmental harms.

Could taxes make gun owners pay for the externalities of gun ownership? In fact, we can and do tax firearm purchases (in 1937, the Supreme Court ruled that it was constitutional to impose what today would be a tax of more than $4,000 on the sale of a machine gun). But a tax is a blunt instrument: A gun purchased by a 55-year-old who completed a safety course may pose considerably less risk to others than a gun bought by a 19-year-old with a driving-under-the-influence conviction. Taxes don’t make that distinction.

Insurance companies, on the other hand, would. If the companies charged only $100 in annual premiums to someone with a history of violent behavior, they’d lose money on the policy, given the frequency with which payouts would have to be made on behalf of people with such pasts. On the other hand, if they asked a farmer in Wyoming whose rifle poses little risk to anyone to pay $10,000 a year, other insurance companies would gladly offer to insure the man’s gun for less.

Over the years, many state legislatures have debated gun insurance plans, though none have passed. In February, the San Jose City Council approved the nation’s first law requiring residents to purchase coverage for some accidental discharges. But gun crimes are far more prevalent than gun accidents.

It will not always be the gun owner who commits a crime: Among prisoners who possessed a gun during their offense, 90 percent were not the original retail purchaser. Therefore, to reduce gun crimes, we should hold purchasers of firearms accountable if others use their weapon to do harm.

Penalizing gun owners if their weapons are used for crimes means tracking chains of ownership. The Tiahrt amendments, which have been attached to Justice Department appropriation bills since 2003 — they are named for former congressman Todd Tiahrt, R-Kansas — forbid anyone but law enforcement to receive the results of gun traces conducted by the Bureau of Alcohol, Tobacco, Firearms and Explosives. A workable gun insurance proposal would require changing the Tiahrt amendments to let courts properly determine liability (and ideally, to let insurers better model risk). When a chain of ownership cannot be established beyond the first private sale, we could still hold accountable the insurer of the last identifiable owner. (Mandating liability insurance does not in principle require amending the Protection of Lawful Commerce in Arms Act, which shields gun manufacturers from legal liability when crimes are committed using their products.)

Insurance companies have objected that they typically don’t make liability payments for intentional acts. Making a payment for an illegal shooting would be like paying out a claim in the case of arson, as opposed to an accidental fire, they argue. But this is a legal concern only if the insurance compensates a bad actor. It is routine to have insurance that covers intentional bad acts. That’s why your homeowner’s insurance compensates you if your home is burgled; or burned down by a stranger.

Suicide, which accounts for two-thirds of gun deaths, does present a challenge for this approach, since paying liabilities to surviving family members could, perversely, incentivize such acts. One solution would require insurers to make a payment to a different recipient; perhaps, for instance, to a fund used to reward victims in cases where guns could not be traced to any insured owner. This would still incentivize insurers to raise the cost of firearms for people with higher suicide risk, based on their mental health history. (Disclosing that history might be voluntary, but people with low-risk records would probably do so.)

Mandatory auto insurance does not prevent all car accidents. But it does financially encourage safe driving. The system rewards good outcomes — a lack of crashes — and incentivizes preventive measures such as driver’s ed. Just as drivers with a record of recklessness should pay a higher cost to drive a car, so should reckless gun owners pay a higher cost to own a firearm.

Jason Abaluck is a professor of economics at Yale School of Management.

Ian Ayres is the Oscar M. Ruebhausen professor of law at Yale Law School and a professor at Yale’s School of Management.