In the wake of the COVID-19 pandemic and civil unrest over policing, Americans are buying firearms at record levels, in many cases their first. As an agent or broker, should you care?
YOUR CLIENTS BOUGHT THEIR FIRST GUN. OR IS IT THEIR FIFTH? SHOULD YOU CARE?
The risk of loss with firearms is remote but real
By Joseph S. Harrington, CPCU
In the wake of the COVID-19 pandemic and civil unrest over policing, unsettled Americans are buying firearms at record levels, in many cases for the first time.
According to the FBI, the number of background checks for firearms purchasers soared to more than three million for the first time in March 2020, when pandemic lockdowns first went into effect. They reached nearly four million in June 2020, a month of disturbances following the killing of George Floyd by a Minneapolis police officer. The Brookings Institute estimates that the unprecedented circumstances in the spring of 2020 resulted in three million more firearms being purchased than would normally have been expected.
So, should personal lines agents and brokers care?
Gun violence, although a plague on segments of American society, is a surprisingly manageable risk for the nation’s property/casualty insurers, for several reasons:
- Most of the 30,000 or so gun fatalities a year in the United States are suicides, and thus not subject to first- or third-party coverage;
- Most other injuries and homicides caused by firearms are committed either in criminal activities, and thus uninsurable, or in household disputes, and thus subject to intra-insured exclusions; and
- Intentional injury exclusions in standard homeowners and personal liability policies preclude coverage for any injury inflicted intentionally, even if the injury is more severe than what was intended. These exclusions include exceptions, however, that preserve coverage for the reasonable use of force to protect persons and property.
Apart from what is determined to be “reasonable” use of force for self-defense, personal lines insurers are on the hook for accidental firearms injuries.
It’s hard to imagine that anyone in the business of advising households would risk ignoring the fact that a client has suddenly acquired a(nother) firearm.
Although shocking at times, especially when children are killed, accidental gun injuries are remarkably rare and far less common than drownings, dog bites, and other accidental causes of death and injury. The P-C industry is easily able to address the hazard of accidental firearms injury within the conventional wording and rating of personal liability coverage.
Not the whole picture
Commercial lines carriers are also largely shielded from liability for the effects of gun violence, thanks to a 2005 federal law that grants civil immunity to gun manufacturers and merchants for damage or injury arising from the illegal use of firearms made and sold legally. (Under the law, gun industry organizations are still subject to liability for gross negligence in transferring weapons to dangerous persons, as well as products liability for any damage or injury arising from the malfunction of firearms.)
This rather cold and clinical analysis of exposure does not provide the full picture, however. One can argue that it leaves out the biggest consideration, which is this:
A defining reality of gun violence in America today is that the law, social realities, and insurance practices have combined to leave shooting victims without full compensation for the cost of their injuries. It follows that the victims must bear those costs, rely on the public for compensation, or find someone else to hold liable.
With gun merchants protected from liability for lawless acts of others, and perpetrators of those acts either uninsured or excluded from coverage, people injured by intentional use of firearms often feel compelled to seek compensation from any potentially responsible party, no matter how remote its connection to a shooting incident. For example, mere acquaintances of shooters have had to respond to suits alleging they were negligent in failing to report dangerous proclivities of individuals who later committed acts of violence.
2020’s gun buyers
Circling back to the spring of 2020, the surge in gun buyers must logically consist of two categories of households: (1) those that already owned a firearm, and (2) those that didn’t.
Regarding first-time buyers, one might ask: Why now? Diseases and disturbances are not new, so self-defense in a time of turmoil is not an entirely satisfactory answer from a risk management perspective.
Do the residents of the household truly intend to use the gun for self-defense? If so, have they fully thought through the gravity of that determination? Have they considered non-lethal alternatives? Do they know their insurer will back them only for reasonable use of force in self-defense?
Now that they own a gun, are they being trained to use the weapon properly? Are they committed to storing the gun and ammunition securely?
Or will their fears subside with a shift in the news cycle? Will the gun end up lying in a box or on a shelf, not on hand for its intended use but readily available to a child or a thief? Impulse purchases of firearms can lead to liability claims that a family may not be protected for, or that an insurer cannot avoid.
On the other hand, what if the buyer in 2020 already owns one or more guns? What prompted the household to by another one at this point? Are the residents assembling an arsenal for some post-apocalyptic future?
Probably not. Reports have found that most households with several guns are comparable to household with numerous tools. The implements are for avocations taken seriously and very carefully by individuals who usually pose no significant threat to public safety.
Still, guns are weapons, and they kill people more readily than a socket wrench or a band saw.
What would you say to a client that told you he or she had a fully equipped workshop? You’d probably shrug and recommend a small tools floater. What if he or she told you there were five modern weapons on the premises? You could offer a first-party gun floater, but your first thought would probably be for excess liability coverage.
No return on effort?
It’s hard to imagine that anyone in the business of advising households about risk would ignore the fact that a client has suddenly acquired a(nother) firearm. To that end, this article includes numerous questions one could ask an applicant or insured. But, to be honest, there is another question an agent or broker should ask first: Is it worth it? Is there any value in inquiring about an account’s ownership of guns, other than for property coverage purposes?
Given the nature of gun violence and the provisions of personal liability insurance, there are no actuarial findings to indicate that the presence of guns, in itself, makes a household a greater liability risk to an insurer. It follows that there will likely be no appreciable improvement in loss ratios from a series of intrusive questions, and no return on an effort that may not be welcomed by applicants or insureds.
At a gut level, many households seem to believe the world is now a more dangerous place and are taking action they believe will protect them. Risk counselors have to decide whether and how to engage this sentiment when it leads to arming their accounts.
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.