What are you looking for?

Showing 9 of 81 Results in Insurance

Testimony of the International Center for Law & Economics to the General Session of the National Council of Insurance Legislators

Written Testimonies & Filings Rep. Carter and the Members of NCOIL, Thank you for inviting me. My name is R.J. Lehmann, and I am the editor-in-chief and a senior . . .

Rep. Carter and the Members of NCOIL,

Thank you for inviting me. My name is R.J. Lehmann, and I am the editor-in-chief and a senior fellow with the International Center for Law & Economics. ICLE is a think tank based in Portland, Oregon, dedicated to promoting the law & economics approach to legal analysis, and to issues of public policy more generally.

Some of you may know me from my prior work at the R Street Institute, which I co-founded in 2012. Among the hats I wore at R Street was running the institute’s insurance policy project, and I was the author of the first nine editions of R Street’s annual report card evaluating insurance regulation in the 50 states.

It was actually early in our days at R Street that I first encountered the topic before us today. After the tragic shootings at Sandy Hook Elementary in December 2012, there was a pressing call for new and creative thinking about ways to address the scourge of firearms violence. Being a research center that was, at that point, devoted almost exclusively to insurance issues, we explored whether mandatory insurance could be part of the solution to promote firearms safety, just as mandatory auto insurance has served to promote driving safety and mandatory workers compensation insurance has served to promote workplace safety. So, while I’m about to tell you why I think these mandates are a bad idea, I want to note at the top that I do understand the intuition.

What we concluded, after batting around various iterations of what a mandate might look like, is that it was fundamentally unworkable. That insurance could not possibly respond in the overwhelming number of cases that were of public concern and that in the limited set where it could respond – which is, basically, true accidents that befall third parties – coverage already exists, either through a homeowners policy or a renters policy.

The two central problems that limit the applicability of any firearms-insurance mandate are that intentional acts are uninsurable and that it is the nature of liability insurance that only harms to third parties are covered.

Taking those one at a time, the claim that intentional acts are uninsurable begs two other obvious questions, each of which, unfortunately, can take us down some rather unproductive detours. What does it mean for an act to be intentional and what does it mean for an event to be insurable?

On intentionality, there’s a whole rabbit hole one can head down on free will and determinism and whether all actions are intentional or whether no actions are intentional. This is not a philosophy class, so I’d like to rescue us from that particular rabbit hole.

The question of insurability returns me to a theme I found myself echoing a lot in another recent public policy discussion—which is whether business interruption for pandemics is insurable. What I said then and will say here is that insurability is a spectrum. Things may be more or less insurable, meaning, in a nutshell, that the willingness of capital to participate in risk-transfer solutions for any particular class of event will vary.

The framing that I think is most helpful for these purposes is to say the sorts of events that are most insurable are those that are fortuitious—which is to say, they happen by chance, rather than by design—and where there is a broad alignment between the goals of the insurer and the insured. When I step into my car, I would like to avoid getting into an accident. My insurer would also like me to avoid getting into an accident. If I do nonetheless get into an accident, it’s a fortuitous event. That event is insurable. If, rather than an accident, I willfully try to run someone down on the road, then we’re not aligned. That’s not insurable and claims for vehicular homicide are excluded—even though, in some places and some cases, the insurer may still be required by a judge or jury to pay a claim.

Applying that logic to the example of firearms incidents offers some context for just how many potential claims are excluded the realm of insurability simply from the fact that insurers are not willing to extend coverage to intentional acts. According to the Centers of Disease Control and Prevention, more than 70% of firearms injuries are the result of assaults, while less than 20% are unintentional. Among firearms-related deaths, the National Safety Council finds that 54% are suicides, 43% are homicides, and only about 1% are accidental.

We therefore start with proposition that only about one-fifth of firearms injuries, and only about 1 in 100 firearms deaths, are even potentially insurable. That universe of potentially insurable claims shrinks even further—although the data on this is harder to find—when you consider that it is the nature of liability policies that they only cover injuries to third parties. If a contractor slips and falls on your property, that might be covered under your homeowners insurance policy. If you slip and fall, it will not be. If your dog bites your neighbor, it might be covered. If your dog bites you, it will not be covered.

So, similarly, if there’s a firearms accident in your home and a third party is injured, that might be covered. Indeed, even if the accident is outside your home—say, you’re the vice president of the United States and you accidentally shoot your hunting partner in the face—your homeowners policy very well might cover that.

But the insured in a homeowners policy is the household, not an individual. If one member of your household accidentally shoots another member of your household—even in the very tragic incidents we hear about involving children—that’s not going to be an insured claim.

Another factor that likely shrinks the universe of claims even further is the language of the HO-3 policy itself. The policy has always excluded injuries or property damage that the insured “expected or intended.” But in 2000, the Insurance Services Office actually broadened that exclusion quite a bit, and the standard policy now states that coverage is excluded for an action that is “of a different kind, quality or degree than initially expected or intended” or “is sustained by a different person, entity, real or personal property, than initially expected or intended.” That’s a pretty broad exclusion and courts have tended to read it as covering even negligently careless actions that result in unintentional injuries.

Nonetheless, despite these manifest limitations on what an insurance mandate could possibly cover, we have watched such proposals perennially introduced in various states in the decade since Sandy Hook, with New York and Connecticut being two of the most frequent states where legislation was considered. Until this past year, when the City of San Jose and the State of New Jersey both adopted differing versions of a mandate, they never went anywhere.

But interestingly, in 2018, we saw regulatory action that, rather than mandate liability insurance for gun owners, actually would appear to forbid it, and this contradiction is important and underappreciated in the current discussion.

For a recap, back in 2018, New York State Financial Services Superintendent Maria T. Vullo brought complaints against the broker Lockton, the underwriter Chubb, and the National Rifle Association over their respective roles in administering the Carry Guard insurance program for NRA members. Some of the charges concerned alleged violations of the declinations requirements to place policies in the surplus-lines market and that the NRA was marketing policies as an unlicensed producer. Those violations aren’t of much interest here. But the core charge was that, because Carry Guard would pay legal defense costs for insureds who face civil or criminal charges related to the use of firearms (that is, where the insured pleads innocent, claims self-defense, or asserts that they are not liable in a civil proceeding) the coverage itself was fundamentally contrary to public policy establishing that criminal acts cannot be insured.

Now, as many insurance lawyers in this room could testify, it’s not always quite as simple as that. It is not unusual at all for an insurer in, say, the directors and officers, or errors and omissions, or environmental-liability lines to find themselves on the hook for the defense costs of an insured accused of a criminal act. And where they are adjudicated guilty, the insurer may try to claw back those costs. But until that point, there are fiduciary duties an insurer owes to its policyholders, and refusing to pay defense costs on a liability policy is usually a quick ticket to a bad faith lawsuit.

But more fundamentally, paying defense costs is a if not the fundamental purpose of liability insurance. So, if the Carry Guard program was contrary to public policy, that’s another way to say that liability insurance for firearms is illegal. And the primary reason I think that has to be considered in this discussion is that one of the states that filed follow-on actions in the Carry Guard case was New Jersey. Which suggests the absurd scenario that New Jersey is now requiring a form of insurance that is illegal to sell in New Jersey.

I am not a constitutional lawyer—or any kind of lawyer for that matter—so I’m going to refrain from saying too much about how these mandates would be treated under the rubric the Supreme Court promulgated in last year’s Bruen decision, although I reserve for myself the right to chime in with my amateur opinion if the subject comes up in the Q&A, which I imagine it will. I would recommend a paper by Adam Schniderman of the University of Michigan Law School that I believe is the first to look at the question, and he makes what I think is a compelling case that neither the New Jersey statute nor the San Jose ordinance would survive under Bruen analysis.

But more generally, I think it’s clear that what these proposals seek is a kind of end-run around the Second Amendment; i.e., that you can outsource to the insurance industry, through its underwriting and rate-setting processes, vetting of firearms owners that existing Second Amendment jurisprudence would appear to deny to state and local governments.

There are various problems with this, but one that I think is most important is that it’s grounded on a theory of what insurers would do to manage firearms risk that appears to be fundamentally untrue. In other words, as mentioned, we already have coverage for firearms accidents in homeowners policies. But insurers don’t charge different rates to different homeowners based on their risk of firearms accidents. Based on my understanding, there aren’t even any insurers who ask whether a policy applicant owns a firearm, so it doesn’t even appear in the underwriting side of the equation.

Now, maybe this is because liability is a relatively small part of the risk underwritten in a homeowners policy, and as mentioned, firearms incidents are an even smaller proportion of liability claims. But it should be noted that, even the NRA’s Carry Guard policy—which was a standalone policy for firearms liability—didn’t charge variable rates. It charged a flat fee.

Bespoke, targeted risk-based underwriting is such a ubiquitous part of our modern insurance markets that we sometimes take for granted just how new and novel it is. In auto insurance, it really only dates back to George Joseph’s Mercury General in the 1960s. There have always been underwriting criteria, such as Benjamin Franklin’s Philadelphia Contributionship refusing to insure homes with trees because they were likely to spread fire. But the assumption that, for any given risk, insurers will automatically have and know how to use the relevant data sets to segregate high risk from low risk, is naïve. The use of this data is actually a historical aberration.

Even if insurers do find that data, the variables that provide actuarially credible projections may not be the ones that you assume or hope for. For instance, it may be that the thing that best predicts whether you’re going to have a firearms accident is your income. That sort of correlation is always problematic and controversial, but it should be particularly concerning if what it implicates is a constitutionally protected right.

I look forward to your questions.

 

Continue reading
Financial Regulation & Corporate Governance

Live by Prop 103, Die by Prop 103

Popular Media Wildfire has hit Assemblymember Damon Connolly’s (D-San Rafael) Northern California district particularly hard in recent years, including the devastating Glass and LNU Lightning Complex fires . . .

Wildfire has hit Assemblymember Damon Connolly’s (D-San Rafael) Northern California district particularly hard in recent years, including the devastating Glass and LNU Lightning Complex fires in 2020, the Nuns and Tubbs fires in 2017, and the Valley fire in 2015.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Illinois Considers Slaughtering the Golden Goose of Competition

Popular Media How it is that Illinois, a jurisdiction not typically associated with a strong commitment to free-market principles, came to be the first state in the . . .

How it is that Illinois, a jurisdiction not typically associated with a strong commitment to free-market principles, came to be the first state in the nation to allow its insurance rates to be regulated entirely by open competition is something of an accident of history.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Association of Past and Future Paid Medical Malpractice Claims

Scholarship Abstract Importance  Many physicians believe that most medical malpractice claims are random events. This study assessed the association of prior paid claims (including a single prior . . .

Abstract

Importance  Many physicians believe that most medical malpractice claims are random events. This study assessed the association of prior paid claims (including a single prior claim) with future paid claims; whether public disclosure of prior paid claims affects future paid claims; and whether the association of prior and future paid claims decayed over time.

Objective  To examine the association of 1 or more prior paid medical malpractice claims with future paid claims.

Design, Setting, and Participants  This study assessed the association between prior paid claims (including a single prior claim) with future claims; whether public disclosure of prior claims affects future paid claims; and whether the association of prior and future paid claims decayed over time. This retrospective case-control study included all 881,876 licensed physicians in the US. All data analysis took place between July, 2018 and January, 2023.

Exposure  Paid medical malpractice claims.

Main Outcome and Measures  Association between a prior paid medical malpractice claim and likelihood of a paid claim in a future period, compared with simulated results expected if paid claims are random events. Using the same outcomes, we also assessed whether public disclosure of paid claims affects future paid claim rates.

Results  This study included all 881,876 physicians licensed to practice in the US at the time of the study. Overall, 3.3% of the 841,?961 physicians with 0 paid claims in the prior period had 1 or more claims in the future period vs 12.4% of the 34?,512 physicians with 1 paid claim in the prior period; 22.4% of the 4,189 physicians with 2 paid claims in the prior period; and 37% of the 1,214 physicians with 3 paid claims in the prior period. The association between prior claims and future claims was similar for high-medical-malpractice-risk and lower-risk specialties; 1 prior-period claim was associated with a 3.1 times higher likelihood of a future-period claim for high-risk specialties (95% CI, 2.8-3.4) vs a 4.2 times higher likelihood for lower-risk specialties (95% CI, 3.8-4.6). The predictive power of a prior paid claim for future claims declined gradually as the time since the prior claim increased, for prior or future periods up to 10 years. Public disclosure did not affect the association between prior and future paid claims.

Conclusions and Relevance  In this study of paid medical malpractice claims for all US physicians, a single prior paid claim was associated with substantial, long-lived higher future claim risk, independent of whether a physician was practicing in a high- or low-risk specialty, or whether a state publicly disclosed paid claims. Timely, noncoercive intervention, including education, has the potential to reduce future claims.

Continue reading
Financial Regulation & Corporate Governance

R.J. Lehmann on the Problem with Gun-Insurance Mandates

Presentations & Interviews ICLE Editor-in-Chief R.J. Lehmann joined The Reload podcast to discuss New Jersey’s new gun-carry insurance mandate and San Jose, California’s gun ownership insurance requirement. He . . .

ICLE Editor-in-Chief R.J. Lehmann joined The Reload podcast to discuss New Jersey’s new gun-carry insurance mandate and San Jose, California’s gun ownership insurance requirement. He said the requirements, which are the first of their kind, won’t accomplish the goal lawmakers have claimed. Namely, insurance companies can’t provide coverage for criminal acts. That basically leaves damage caused by accidental shootings as the only real option for coverage.

And even accidental coverage is more limited than most people realize. For instance, homeowners’ insurance–which San Jose now claims qualifies under its mandate–will cover accidental shootings, but only for damages done to third parties. That means any harm caused to the homeowner or family members living in the home wouldn’t be covered.

Lehmann said New Jersey’s requirement is even more problematic because it appears to be trying to require insurance against deliberate, and potentially criminal, acts. He said that’s not something any company offers nor is it a policy lawmakers could realistically force companies to offer. It also goes directly against the state’s complaints about “concealed carry insurance,” which are often not actual insurance policies but lawyer co-ops or group retainer plans.

Beyond the practical problems with the mandates, Lehmann said they also face an uphill battle in the courts. He explains why founding-era surety laws are a bad analogue for these modern requirements and why they are unlikely to survive the Bruen test in the long run.

Video of the appearance is embedded below.

Continue reading
Financial Regulation & Corporate Governance

R.J. Lehmann Joins On Point for Discussion of Liability Insurance for Guns

Presentations & Interviews ICLE Editor-in-Chief R.J. Lehmann joined On Point, a daily discussion program produced by WBUR radio in Boston, for a discussion of  the nation’s first gun-insurance . . .

ICLE Editor-in-Chief R.J. Lehmann joined On Point, a daily discussion program produced by WBUR radio in Boston, for a discussion of  the nation’s first gun-insurance mandate, which took effect this year in San Jose, California. Gun owners in the city are required to have liability insurance or they could be fined a minimum of $250. But can insurance actually help curb gun violence?

“Insurance in and of itself is never going to cover the kinds of violent events that people imagine it would because insurance can’t cover things that you do on purpose,” R.J. Lehmann says.

Guests

Audio of the full episode is embedded below.

Continue reading
Financial Regulation & Corporate Governance

Has Sarbanes-Oxley Made Insurance Riskier?

Popular Media The Sarbanes-Oxley Act of 2002 (SOX)—named for its chief sponsors, former Sen. Paul Sarbanes (D–Md.) and former Rep. Mike Oxley (R–Ohio)—was intended to restore trust . . .

The Sarbanes-Oxley Act of 2002 (SOX)—named for its chief sponsors, former Sen. Paul Sarbanes (D–Md.) and former Rep. Mike Oxley (R–Ohio)—was intended to restore trust in the transparency of publicly traded companies after the collapses of WorldCom and Enron Corp. revealed that their auditors had certified financial reports that overstated the firms’ assets and massively understated their liabilities.

But, of course, “transparency” isn’t quite the same thing as prudential safety and soundness. In the insurance space, more specifically, transparency doesn’t necessarily equal solvency.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Nation’s First Gun-Insurance Mandates Take Effect. Will They Hold up in Court?

Popular Media As the calendar flips to 2023, among the scores of new laws taking effect are a pair of legislative mandates that would, for the first . . .

As the calendar flips to 2023, among the scores of new laws taking effect are a pair of legislative mandates that would, for the first time anywhere in the country, require firearms owners to obtain and maintain liability insurance. What remains to be seen, however, is whether either measure will survive Second Amendment challenges, particularly given the standard handed by the U.S. Supreme Court in its June 2022 New York State Rifle & Pistol Association Inc. v. Bruen decision.

Read the full piece here.

Continue reading
Financial Regulation & Corporate Governance

Administrative Browbeating and Insurance Markets

Scholarship Abstract Some state insurance regulators have been using their regulatory muscle to coerce insurers into furthering their political ends. They have protected favored but harmful . . .

Abstract

Some state insurance regulators have been using their regulatory muscle to coerce insurers into furthering their political ends. They have protected favored but harmful commercial activity and have strangled legal but disfavored individual conduct.

In the process, those regulators have disabled the benefits that a properly functioning insurance market can provide. They have hampered individuals’ ability to engage in desirable activities, like home ownership, that would otherwise be too risky given their incomes; they have made socially desirable but not risk-free activities, like responsible firearm ownership, less safe; and they have deprived the market of data on safety and risks. Such use of government power to abuse an “outgroup” for the benefit of the “ingroup” can also have devastating effects on social stability.

This paper analyzes the situation through two cases and suggests solutions that preserve near-plenary state control over insurance under the McCarran-Ferguson Act while limiting state regulators’ ability to abuse this special federal-state arrangement.

Continue reading
Financial Regulation & Corporate Governance