Experts in this segment say
new policy submissions dealing with all aspects of guns, including
gun
shops, gun dealers and gun ranges are up exponentially compared to the
last couple years.
“Every single one of my gun shops has increased its revenue by 25
percent in the last year,” says Scott Wilson, president of
Best Shot
Insurance in Chesterfield, Mo., a division of Charles L. Crane Agency.
“In addition to that, the number of new ranges opening has gone through
the roof.”
Wilson says sales are up because some people fear they will have
their guns taken away under the proposed legislation and feel they
should exercise what they believe is their Second Amendment right now
while they still can.
Best Shot covers firearm accessory manufacturers; firearm
instructors; firearm retailers, wholesalers and distributors; gunsmiths;
gun shops and shooting ranges; and hunting clubs and preserves.
Coverages for these classes vary by what they are involved with but
Wilson says the policies are very black and white, and if the exposure
is not listed it is not covered so agents need to be thorough when
underwriting.
Wilson says increased demand for guns and gun services like gun
ranges or classes has led many businesses to expand into other areas
they were not in before. But too often they are not updating their
insurance coverage appropriately.
“The biggest exposures I see right now are a lot of gun shops going
into the manufacturing side without knowing what coverages they need,”
he says. “For gun ranges offering conceal carry classes there is a
professional liability exposure. A lot of gun ranges and shops are not
carrying the proper coverage to protect them from a professional
liability standpoint.”
Gun ranges that offer classes on self-defense and carrying a
concealed weapon are seeing a marked uptick in enrollment, especially
from women, and teaching these classes opens the range up to
professional liability exposures – which most do not realize. New
legislation that targets concealed carry laws will impact what is taught
so range owners need to be on top of any changes.
“In certain states you could teach four different types of classes on
conceal carry laws,” says Wilson. “The key thing is for ranges to be up
on the most recent changes on conceal carry legislation and be aware of
what is institutionalized in their state at that particular time.”
Wilson says most instructors would carry personal gun liability
coverage but agents need to educate range owners and instructors of
conceal carry classes about the importance of professional liability
coverage as well, especially considering future changes in legislation.
Carriers that write these classes, says Wilson, are also following
gun legislation proposals closely so they are prepared to update
coverages if something changes. Carriers are paying particular attention
to legislation around semi-automatic weapons. he says.
“Manufacturers are still making these weapons and we are still
supporting those who do. Our products are still backing those [weapons
manufacturers] until the legislation changes,” says Wilson. “If they get
outlawed the policy will be changed completely to exclude those.”
For gun shops, Wilson says sales will be affected dramatically if the
waiting period is changed by any federal or state mandates. Insurance
carriers are also “squeamish” about gun shops or ranges that carry fully
automatic weapons unless they are being used for military, police or
tactical systems that are fully trained for those weapons, says Wilson.
“Carriers are asking questions regarding fully automatic weapons that
they weren’t asking before and denying coverage,” he says. “Some are
responding to the actuaries who have been looking at the numbers and
others are following suit from political pressure and what might be
coming down.”
Wilson says the majority of gun liability business is written in the
E&S market and he expects that more will go that way if any
legislation is passed and takes effect. He also says premiums will go up
if that happens. Until then though, it is business as usual for this
market.
“At the end of the day there is a lot of fluff and some actions that
could change exposures going forward but right now everyone is in a
holding pattern and waiting to see,” says Wilson.
He also thinks this is still an untapped market where a specialist can do well.
“When 2008 came around we were heavy into construction and lost half
of our book overnight,” he says. “So this market segment has really
helped our agency and this industry.”
Gun Dealers
The gun dealer market has changed quite a bit in the 32 years since
New Jersey-based Joseph Chiarello & Co. began writing this class.
Chiarello & Co.’s first policy application for gun dealer
insurance consisted of a one-page form with seven questions, according
to Robert Chiarello, president of the brokerage, which specializes in
the firearms industry. After years of fine-tuning the underwriting, that
form is now 14 pages long, Chiarello says.
The increased emphasis on underwriting may partly be in response to
the expansion of regulations on this class that has occurred over the
years.
In 1998, the National Instant Criminal Background Check System, or
NICS, was mandated by the Brady Handgun Violence Prevention Act of 1993
and launched by the FBI. All federally licensed gun dealers – Federal
Firearms Licensees (FFLs) – are required to use the system every time a
gun is sold to determine whether a prospective buyer is eligible to buy
firearms or explosives.
“Before ringing up the sale, cashiers call in a check to the FBI or
to other designated agencies to ensure that each customer does not have a
criminal record or isn’t otherwise ineligible to make a purchase. More
than 100 million such checks have been made in the last decade, leading
to more than 700,000 denials,” the FBI states on its website.
“Every dealer, including a pawnshop, who sells firearms, has to be
licensed by the federal government, through the Bureau of Alcohol,
Tobacco and Firearms. And they have an FFL, which is a federal firearms
license, and there are different classes for dealers, for gunsmiths, for
manufacturers and so on,” Chiarello says.
“They’re all investigated by the Bureau of Alcohol, Tobacco and
Firearms,” Chiarello says. “They all have to pass rigorous background
checks and then they’re given a license. The only way that they can stay
in business … is with that license.”
Every time someone buys a firearm from a licensed seller, the
purchaser must fill out and sign a federal document – ATF Form 4473 – in
the presence of the dealer, Chiarello says.
The form includes questions covering history of domestic violence
and/or harassment, felony convictions, drug use, mental condition,
citizenship/resident status, whether the buyer was dishonorably
discharged from military service and whether the purchaser is buying the
product on behalf of someone else.
After the form is completed, the dealer then contacts the FBI and
provides “the prospective buyer’s Social Security Number, his name,
address, and a few other things. The FBI can then do an instant
background check for criminal prosecution, for domestic violence issues,
which should be reported to them, and also mental disabilities,”
Chiarello says.
The program Chiarello administers through AIG is available in 50
states and currently insures about 3,000 gun dealers. Chiarello also
provides coverages for other weapons-related businesses, including
instructors, manufacturers, gunsmiths, shooting ranges, etc.
The base product is not particularly expensive, Chiarello says. The
annual premium starts at about $800 and Chiarello has the ability to
price the account up or down about 15 percent depending on the
particulars of the dealer’s facility.
In addition to an FFL, the facility must have a central station
burglar alarm in order to be considered by the brokerage. The dealer
also should have “safes, cameras, and crash guards in front of
plate-glass windows, so people can’t just drive a car through the window
and go in and steal the guns and back out and go away,” Chiarello says.
A dealer, such as a pawnbroker, who has an FFL but does not
specialize in firearms, may be instructed to take a gun that is pawned
but not retrieved by its owner to a licensed, insured gunsmith to check
out and certify the gun. Gun dealers are required to certify used guns,
as well, but they generally “know enough in selling a used firearm to
make sure that it works correctly, that the safeties work,” Chiarello
says.
“There are three triggers in any liability case and that’s design
defect, manufacturing defect, and failure to warn,” Chiarello says. “The
failure to warn is the owner’s manual.”
At the point of sale, even if they are selling a used gun, the dealer
should always make the owner’s manual available to the buyer, or tell
him where to access it online, he says.
For gunsmiths, particularly, an owners’ manual is mandatory, Chiarello says.
“When we insure a gunsmith who’s re-manufacturing a gun, or changing
it, or assembling parts to make a gun, one of the questions we ask … is,
‘When you sell the gun, do you include an owner’s manual?’ If they say,
‘No,’ then we say, ‘We can’t insure you,’” he says.
Best Shot Insurance Agency’s Scott Wilson says carriers have started
to get more technical with gun dealers or shops that are doing any sort
of gun building or trigger manufacturing. In ordered for the gunsmith
work to be covered, the shop must be classified as a manufacturer to the
insurance carrier.
“The key thing is having the right coverage for the right exposures,
and you have to have a gunsmithing exposure on the policy,” he says.
“That’s the biggest exposure I see right now. A lot of gun shops are
going into the manufacturing side without knowing what coverages they
need.”
Chiarello says some strange claims do come out of these facilities.
“We had one where a guy went into a gun store with his gun to have it
repaired. And the salesman behind the counter, or the clerk behind the
counter, says, ‘You sure it’s unloaded?’ He says, ‘Yes.’ The dealer put
it behind his back, pulled the trigger, and of course it was loaded. And
he shot into a canister of gunpowder which, of course, ignited, and
started a fire in the place. Things like that happen.”
Straw Sales
One cause of concern for gun dealers and government officials alike
is the potential for “straw sales, where someone who is legally capable
of buying a firearm goes in and buys it in his own name, which is legal,
but then sells it or gives it to someone else, who maybe can’t buy that
firearm legally,” Chiarello says.
Legislation has been proposed “to increase the penalties for those
straw sales, because if someone who’s a criminal can’t buy a gun, he
gets it from somewhere,” he says. “Either he steals it from someone or
he buys it from someone who owns it legally.”
Currently, NICS background checks are required only on sales made
through licensed dealers. But there are legislative initiatives on both
state and federal levels that would require background checks for all
sales, including sales between individuals.
Such legislation would be difficult to enforce, especially on the individual level, Chiarello says.
But gun shows are another matter. While licensed dealers at gun shows
have to comply with federal regulations regarding gun sales and
background checks, individual sellers typically do not. Some proposed
state and federal legislative measures aim to close that loophole.
Some of the proposals would require an unlicensed seller to transfer
the gun to the new owner through a federally licensed dealer, Chiarello
says.
Chiarello says his company does insure gun shows, but only “where
they have state police, or police at the door to check what comes in and
what goes out. No ammunition, because sometimes people will
accidentally shoot a gun in a gun show. … and we do it for people whose
business it is to run and control gun shows, and know what has to be
done both locally and do the NICS checks there, if they’re a dealer.”
Workers’ Compensation Coverage
The Holdren Insurance Group (HIG) specializes in workers’
compensation for the shooting sport industry as well as for gun stores,
gun manufacturers, and gun distributors. Chuck Holdren says placing
workers’ compensation coverage for these classes has always been
extremely difficult. Now, the few markets that do write the coverage are
starting to raise rates.
“We are seeing rate increases of 10 to 15 percent in our book of
business on renewals for our exposure,” he says. “Our guys are getting
hammered just because of what they do and they don’t have any losses.”
HIG began its program about two and a half years ago and Holdren says the loss ratio has been fantastic so far.
Most carriers don’t really understand firearm-related risks and would
rather decline than get to know the class, but the growth this industry
is experiencing may change that, Holdren says.
“This one industry – pardon the pun – is exploding and I see that
happening for the foreseeable future,” he says. “I have been talking to
other carriers and they are realizing it is an industry that no one is
really paying attention to.”
Holdren says the gun control conversations in Washington, D.C., are
leading to a surge in people buying guns for the first time or opening
new gun ranges. At HIG, his insureds’ payrolls are up 20 and 30 percent
over last year and he has been receiving about 10 submissions a month
for new gun ranges across the country.
Holdren says he is currently in talks with carriers to expand into
the gun liability side so HIG can offer a full package to this class and
is looking at acquisitions and strategic partnerships to help guide
this expansion. The agency is also moving the workers’ compensation
coverage from SeaBright Insurance Co. to other carriers as well.
He says the key to covering this industry effectively is to
understand the amount of safety, loss control and engineering that must
go along with gun-related facilities.
“A gun range is not a place you go and goof off. They are so heavily
regulated with local, state and federal compliance issues,” Holdren
says. “There is no room for people to screw around.”
HIG has a comprehensive set of guidelines that delves into an
insured’s safety and loss control practices used on every account they
underwrite.
“It allows us to see what they are doing and how they operate,”
Holdren says. “If there is even a remote question of safety or loss
issues we don’t take it. We are not a price sensitive product so we only
write the best.”
What would perhaps be surprising to some is that most work comp
claims that do come up are not because of gunshot injuries, Holdren
says. They typically have to do with the hearing loss associated with
the noise in a gun range or gun facility; lead issues from handling
ammunition and cleaning of the range facility; injuries from lifting
boxes of ammunition or firearms; and cuts and bruises.
“Safety is first and foremost everywhere – from liability waivers, to
signs to certified range master employees and owners – you don’t just
get a gun and walk around. Everything is very heavily regulated,”
Holdren says.
Hunting Lodges
One class that isn’t too concerned about gun control legislation
proposals is the hospitality side, such as hunting lodges or clubs where
there are firearms on the premises but they are not supplied by the
business.
Cortland, N.Y.-based McNeil & Co.’s AdvenSure program, written on
Arch Insurance Co. paper, insures business owners of hunting and
sportsmen facilities for their everyday business needs, but doesn’t
cover gun liability.
Steve Gulini, vice president of marketing for McNeil, says it can be
difficult for these types of facilities to obtain coverage because some
insurers exclude businesses that allow firearms on the premises.
McNeil’s program works with these businesses and provides waivers that
indemnify the lodge owner or the guide if there are guests participating
in an at-risk activity.
Gulini says they do not expect that proposed legislation could have
an impact on the hospitality side, unless the availability of ammunition
is addressed or restricted in geographic locations.
“That could impact hunting operations if ammunition is not readily
available to guests and clients in the facilities area and it forces
[guests] to travel somewhere else,” he says.
Source : http://www.insurancejournal.com/news/national/2013/04/11/287978.htm
