on December 31, 2012 by admin in Insurance Industry, Comments (0)

Creating a $100B Gun Safety Industry

Gun safety laws have been deadlocked for many years, largely because the options on the table are zero-sum — either gun control advocates win and gun rights advocates lose, or vice versa. But there may be a way out if we re-frame the question and the solution.

What if we sought not just a regulatory solution, but also created a profit-making opportunity? Specifically, what if the government partnered with business to create a new category: a $100B gun safety and enjoyment industry?

For this to work, it requires us to understand the rational and emotional demands of what both gun control and gun proponent consumers want. Demand for the gun control consumer is fairly simple — keep me and my family safe from guns. Going deeper and segmenting the gun proponent consumer yields key insights.

The automotive industry is a useful analogy, for both safety and enjoyment. Car owners segment into two camps. At the highest level, you can divide car owners into those who "need cars" (e.g., Utilitarians and Safety Seekers) and those who "want cars" (e.g., Driving Enthusiasts and Tinkerers. Similarly, gun proponents can be divided into two camps. First are "Protection Seekers" — consumers who want the protection of guns and hope to never use them. Second are "Enjoyment Seekers" — consumers who may also want protection, but are more focused on guns as a hobby — perhaps they enjoy hunting or target shooting, or perhaps they just dig the guns themselves. The good news is that "protection" is a close cousin of "safety", so Protection Seekers are the easiest to align with gun control consumers also seeking safety.

To satisfy the gun control (Safety Seeker) group and the first group of gun owners (Protection Seeker), requiring innovations in product safety is the first opportunity. Both the automotive industry and the government can pat themselves on the back for increasing automotive safety through innovation (seat belts, air bags, anti-lock brakes, lane departure sensors) and sound regulation (seat belt requirements, age restrictions, etc.) But one key factor is the legal requirement to have auto insurance if you drive a car (vs. just own a car). Government could require gun makers to layer in similar safety/protection innovations into the products themselves, which both gun safety and protection seekers should support. As Farhad Manjoo has pointed out on Slate, technology has advanced to the point where we can go far beyond the safety catch. If the gun is there to protect your family, I'm sure Protection Seekers would welcome safeguards to ensure their kids don't get into the guns and play around with it. This might both greatly reduce the number of deaths caused by guns (as it is now, just having a gun in the house increases the risk of a fatal shooting) and create an opportunity for gun manufacturers to charge a premium for the safest guns, the way Volvo charges a premium its safe cars, and grow through innovation.

Requiring gun insurance is the second opportunity. Again, cars provide a useful analogy: if you drive, you are required by law to have insurance to protect yourself, your car, and anyone else directly affected by an accident. Insurance companies charge more for riskier cars and riskier drivers. They invest significant dollars in actuaries to ensure all risk factors are accounted and charged for. I remember being surprised (and a little insulted) when my auto insurance went down after I got married. It went down again when I bought a house and could say I was storing my car safely in a garage instead of out on the street. Like most, one of the most immediate thoughts that came to mind when you experience a driving mishap (ticket, accident, etc.) is, "will my insurance go up"?

Not surprisingly, I checked with a few friends who are gun proponents and this idea didn't go very far — it was viewed as burdensome regulation and an infringement on Second Amendment rights. After all, health insurance and even car insurance — as much as most of us don't like paying for them — do offer us a benefit. And all that firearms insurance would do is take some of the costs for gun violence out of the taxpayer-supported criminal justice system, and the health insurance system we all pay for, and ask gun owners to pay for them. Nonetheless, insurers could use the same principles that auto insurers use to make sure that the safest gun owners pay the lowest rates. True protection seekers would get the peace of mind of insurance, with the lowest possible costs. And those who don't own guns should support this, since it means that consumers of the product pay for the risk associated with the product, instead of externalizing those costs.

At the same time, insurance could benefit "Enjoyment Seekers" in a few ways. Some of the profits from the insurance could help hunters transport and preserve their game so they could more easily feed their families. Other revenue could go towards conserving hunting preserves and ensuring a healthy, abundant wildlife population. If it becomes too expensive for individuals to adequately insure military-style assault rifles, perhaps the industry could take a page from the sports car driving schools, where you can go to a race track and drive hot cars fast. Perhaps gun enthusiasts could still fire such weapons at gun ranges, safely.

If the roughly 50 million households that own guns all purchased gun insurance at an average of $2,000/year (roughly the average auto insurance cost/year), that's a $100B industry. It's still less than the estimated annual cost to the US of gun violence — which was $174 billion in 2010. But it's a start. The industry would both accurately assess and price risk and create a personal economic incentive for safety, while simultaneously creating jobs. According to IBISWorld, the US auto insurance industry is $178B in revenue employing nearly 250,000 people.

I wholeheartedly agree that gun safety is a business issue. I'm betting that a profit motive and job creation through category creation may help ensure we achieve not just more gun regulation, but the actual outcome of gun safety.

Article source: http://blogs.hbr.org/cs/2012/12/creating_a_100b_gun_safety_ind.html

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