Liability Insurance and the Regulation of Firearms

Abstract

Prepared for an edited volume on gun litigation (Suing the Firearms Industry, T. Lytton, ed.), this working paper examines the topic of gun risks as a case study of liability insurance as a form of regulation. The paper identifies the following broad categories of 'regulation by insurance': loss spreading, gate keeping, loss prevention, management of loss costs, research and education, engagement with public regulators, liability limitation, and selective exclusion. Personal lines liability insurers have adopted as their main approach to gun related injuries the strategy of selective exclusion, through the application of the intentional harm exclusion. Commercial liability insurers employ a somewhat broader array of techniques. Selective exclusion is the main tool, but there is some evidence of gate keeping and prevention. Interestingly, guns appear to be regarded as more significant property risks (theft, fire and explosion) than liability risks. In the context of the "insurance as governance" literature, the main contribution of the paper is to emphasize that the freedom to exclude risks means that private insurance cannot be counted upon to address difficult social problems such as gun violence.

Keywords: Insurance, guns, regulation

JEL Classification: G22, K13, K29