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Insurance, crime, and the NRA

August 8, 2018

I suspect those selling car insurance often are asked whether the insured can purchase a rider that helps with legal expenses, if the insured ever is charged with a DWI or other serious crime committed behind the wheel. Many states take a dim view of allowing people to purchase insurance against the cost of possible criminal acts. The whole point of criminal law is to forbid and deter willful acts of certain sorts. Allowing insurance policies to cover some of the cost of that is the quintessential example of moral hazard.

And by way of that example, the NRA has been marketing insurance to its members who worry that they might end up on the wrong side of the law by shooting someone. The mandatory class I took for a Texas LCH some years past pushed those NRA policies. The instructor instilled almost as much fear of criminal prosecution as he did of evil culprits who needed to be shot. I suspect he somehow made some money for the policies sold.

New York Governor Cuomo has moved against the insurers behind those policies, and is urging similar action by states with similar laws. And the legislation of such laws in states lacking them:

Governor Andrew M. Cuomo today launched a national effort urging states across the country to follow New York’s lead and outlaw the NRA-branded “Carry Guard” insurance program if they determine it does not already violate their state laws. The Governor’s call to action follows a State investigation that found the program illegal under New York State law, leading to penalties against insurance companies involved. New York will begin outreach to other states to support their efforts to outlaw the practice and hold insurers responsible.

The insurer is blaming the NRA. The NRA is suing New York, arguing that its regulatory actions went beyond their legitimate ends, and that New York’s moves threaten its very financial viability. You can tell the NRA is desperate when it spends only a million dollars or so advertising for Kavanaugh.

Though New York is moving for quick dismissal, that lawsuit strikes me as likely to spend years in the court, with all sorts of issues coming to the fore. It may be that New York regulators overstepped. I doubt, though, that the NRA is having a hard time finding depository services. There are any number of banks from any number of states that would jump for their accounts. I would be happy to introduce the NRA to some south Texas bankers, if they need that.

The NRA created the mess they are in by marketing policies, quite aggressively, that they should have known were illegal in some of the states where those policies were sold. I suspect what really worries them is the almost inevitable class action suit headed their way, for the premiums long paid on policies that were and are worthless, because they are illegal.

Interestingly, the one group besides the NRA that thinks gun owners should insure themselves against criminal acts are some anti-gun zealots who wrongly think that would have a large impact on the number of gun owners. Many gun owners are suckers, and the NRA was more than happy to sell that product. As to actual liability insurance, not dealing with criminal acts, that typically is rolled into homeowners and renters insurance. The risk of a neighbor’s child finding your gun and shooting himself is less than the risk of him falling in your pool and drowning or taking your heart medicine and poisoning himself. As much as it may be a hot topic of political debate, from an actuarial viewpoint, it isn’t significant.

I wouldn’t be surprised if Texas now enacts a law explicitly making it legal to insure oneself in case of criminal prosecution. Moral hazard be damned. Sadly, in the local political climate, committing crime matters mostly if the perpetrator isn’t of the class who stay well-insured.

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