Inside Commercial Firearms Insurance and the Fight for America

A few years back, I began what has been the most stressful work of my life, (this from a guy with multiple combat deployments). I started a property and casualty insurance program for the commercial firearms industry called Action Underwriting, LLC.

I’ve been involved with guns and the business of guns for most of my life. People in the firearms industry know me as a writer, soldier, FFL/SOT holder, investor, manufacturer, consultant, contractor, competitor, hunter, 2A advocate… if it makes noise and burns powder, I’m all about it.

On the other hand, before starting this company, the only thing I really understood about insurance was that I didn’t like it, I was probably getting ripped off, but I had to have it. I had to have it because accidents happen, but that’s not why I started an insurance program for gun companies. I started it because, first, if everything went right, there might be a sustainable business there, and second, because somebody really had to.

There’s a cottage industry of anti-Second Amendment activists who are taking donations for the purpose of suing anyone in the gun industry out of business. They file one ridiculous lawsuit after the next, even when they know they’ll eventually lose, because it’s not their money and they know the price of fighting each case will fall on the gun company’s insurance. Eventually, they hope, insurance companies will stop insuring firearms companies because of the loses, and then the entire industry will collapse. If you hate America, this kind of lawfare is a solid strategy because it raises the cost for everyone, even the companies in the industry that have done nothing wrong.

Sadly, it’s working. There are very few insurance programs left that specialize in writing liability and property coverage for the firearms industry, especially in the middle market, and prices are rising fast. The small retailers have Lockton, the really big manufacturers can set up their own insurance programs, and everyone else in the middle — thousands of companies — essentially have just Action Underwriting, OSR, and Joseph Chiarello & Co.

Those last two companies are the only ones I’d consider to be real competition of mine and I’m grateful they are in the market. Good firearms companies are going out of business or are risking everything they own by going without, all because they can’t afford insurance.

That is unacceptable, so, since I knew the business of guns, but not the business of insurance, I set out to find the few people in this country who knew a whole lot about insurance and are also “gun people”. Fortunately, they do exist and we started Action Underwriting. Through them, and through running the program, I’ve learned a lot about insurance, and I’ve learned that if you are in the firearms industry, you really need to know a lot more about insurance than you already do.

Guns are Icky

A popular misconception, and one I held prior to starting Action Underwriting, is that insurance is entirely run on data and that actuarial tables control the decisions on rates and coverage. I was very wrong. Data plays a role in those decisions, but so do the politics and emotions of the leaders and employees of those companies.

The reason why firearms companies often find it hard to get excellent coverage at reasonable prices is because, throughout the insurance industry, there are very few players willing to be associated with the gun industry.

There are two big reasons for that. First, there’s a mismatch between the actual risk and the perceived risk. Most of the people who run insurance organizations aren’t shooters or hunters, and they know little to nothing about the industry. Their entire understanding of the gun industry comes from rumor and the legacy media.

Simply put, your company’s property insurance premiums are particularly high because your carrier probably thinks your building is going to blow up and kill everyone in the county at any minute. Data proves otherwise, but most never bother to review that data because of their own preconceptions of the risk.

Second, big insurance organizations are run by people, and those people are not “gun people.” They are very likely from places like New York City and London. They know nothing about guns other than what they’ve seen in the movies and what the people around them tell them. None of that is good. They don’t want to be looked down on or ostracized by their friends at the tennis club, so they stay away from anything firearms-related unless it’s the pistol carried by the security guard at their building.

Still, this is America and there are a precious few capable people out there who appreciate freedom and are willing to provide excellent coverage and reasonable prices for the commercial firearms industry. You have to look for them and you have to know what you’re looking for. It’s helpful to understand who the players are, and how they affect insurance prices and coverage.

Insurance Carriers

Insurance carriers are the gorillas in the room. They are the primary financial backing for any insurance program and they’re the ones that actually issue the payments in case of a loss. Because it’s their money out the door when a claim is filed (or at least some of it), they get to decide what coverage is offered and what the price of that coverage will be.

Carriers can choose, usually on an annual basis, whether or not to continue the program. Unfortunately, there’s been a good number of carriers that have pulled out of the firearms market or refuse to participate in the market at all because they don’t align politically with the American right to keep and bear arms. That leaves the industry with very few options, and the carriers in the market with a lot of power.

As the insured, you want to know that the carrier is financially secure and that they won’t be pulling out of the program or denying your claim for political reasons. A company with an AM Best “A” rating or better means a third party has reviewed them for solvency and their time in the market insuring firearms companies will tell you if they have any staying power.

When we created Action Underwriting, we specifically partnered with our carrier because they had an “A” rating, had previously run another commercial firearms insurance program, and had decades of experience. The fact that they were avid shooters and hunters was another priority. Sadly, this extremely rare. In fact, some of the most common insurance carriers that firearms companies use are major contributors to anti-2A politicians and organizations. If you’re doing business with companies actively working to see you fail, don’t be too surprised when they delay or deny your claim.

Reinsurance Companies

Reinsurance is a part of the puzzle that few people outside the insurance business have heard of. It’s what it sounds like…insurance companies for insurance companies. (The fact this exists should tell you how important good insurance really is.) Reainsurers pay part of the claims and they take part of the revenue of the program. Because they also pay a portion of any claim, they also get some say in coverage and price.

Very few insurance programs could survive without reinsurance and it’s another one that’s particularly challenging because there are not many reinsurance companies willing to participate in the commercial firearms market, for all the same reasons as above. For my company, Action Underwriting, our principal investor is also our reinsurer. This arrangement is so rare as to be unique in this market. They’re committed to the company and to the cause.

Program Administrators

Then we have program administrators, people like us. Program administrators are the companies that carriers contract to judge risks, write policies, set premiums, interact with agents…all the things that actually make the program run. We get a range of rates set by our carrier and reinsurer(s) and, depending on how risky we think the policy is, we set the rate somewhere within that range.

In reality, we also help to set those rate ranges in the first place by providing our own expertise on what the risks really are and what the market will sustain as far as price. The same goes for the actual coverage. We help set up what coverage is offered by the carrier based on that same expertise and experience. Most of the time the program administrator doesn’t pay any portion of a claim and is paid a percentage or fee based on the performance of the program.

Because of our unique relationship with our reinsurer, that isn’t the case for Action Underwriting. We take on risk for each policy sold and pay a portion of the claims. As you might imagine, that makes us particularly careful in how we judge the risk of any company we insure. Unlike most program administrators, we have skin in the game.

As the insured, you should care a lot about your program administrator. These are the people who judge whether or not to insure you, under what conditions, and at what cost. You want them to have an understanding of your business and the firearms industry as a whole. Understanding your business, what it really does, and what you’ve already done (or are willing to do) to lower the risk of a large claim will radically affect your coverage and rate.

Are you a “firearms manufacturer” or are you really a business that makes the occasional gun, but 95% of your revenue comes from sights and small metal parts? Your program administrator’s answer will cost you 30% to 40% of your general liability premium alone.

Are you a “firearms manufacturer” or are you really a distributor for a manufacturer outside of the US? Either way, the US government says you’re the manufacturer, but whether or not your program administrator agrees can cut your cost by  50% to 70%. For a lot of companies I work with, that means tens of thousands of dollars each year.

You really need your program administrator to be packed with “gun people.” To put a fine point on it, if you aren’t doing business with me or one of the other few specialists in the market, you’re probably not getting the right coverage or the right price.

It’s also your program administrator and your carrier, together, who will manage your claims. Paying people money is the principal role of an insurance company. Although they can definitely help you mitigate risks for your business, that’s their ultimate job. That’s what you are paying your premiums for. Having someone who understands your business, someone you can actually talk to on the phone or in person, is of absolute paramount importance. Otherwise, you’re going to get delayed and denied if you have a claim.

Agents/Brokers

Finally, there are the agents/brokers, the people that actually sell the insurance. For most firearm companies, agents are the only people they’ll ever directly deal with until they have a claim. You go to the agent and then the agent comes to me. I work with the agent to decide the coverage and the price offered. If they’re a good agent, they’re going through that process with me and the (too few) other firearms-specific programs out there to get you the best coverage at the best cost for the coverage you need. They get paid a commission based on the premium (cost) of the policy and they don’t take any direct financial risk for a claim.

Here’s a secret many of you already know; most agents are worthless. The vast number of agents gun companies use don’t know the gun business and do very little to earn their commission. This is most often the case if they don’t specialize in the firearm industry because they’re unaware of the specialized coverages and carriers for that market.

You’d be surprised how many policies I’ve seen gun companies buy that carefully exclude anything about firearms from the coverage. The companies still paid their premiums, but they didn’t get anything of value for it. In short, their agent failed them.

On the other end of the spectrum, there are a few insurance agencies that actually understand the firearms industry and work hard. These are the “gun people” who also sell insurance and they’re worth their weight in gold.

A quality agent should be thought of as a partner in your business and a key part of the strategic planning for your company. Brent Gilliland at the Precision Firearms Insurance Agency (www.pfins.com) lays out what a good insurance agent is supposed to do on his web site (his LinkedIn page also has a lot of good insider information).

If an agent does his job, it’s a lot of work and it ought to be. A good 10% to 14% of your premium payments go to the agent. That’s a bigger percentage than I make, so they’d better be working hard for you.

If all you get each year from your agent is a renewal quote, it’s time to start shopping for somebody new. Beyond Brent at PFIns, there are some great agencies across the US that specialize in the firearms industry, like Trent Yager and his crew at The Firearms Insurance Agency, Heather Gillingham and Chris Patton over at NFP, Tommy Brenner and staff at Fortify, and a few others. I have not only done business with these folks, but I’ve hunted and fished with them, too.

If you want a recommendation on what agent to use, feel free to email me directly (address below) and I’ll recommend someone. These agents aren’t bound to any one program, and the program administrator (me) generally gets paid the same no matter which agent brings in the business.

Fraud

Believe it or not, there are crooks in the gun industry just like everywhere else. During our first year of operation, one-third of the claims made against our policies were for losses that, upon investigation, actually occurred before the company had even applied for insurance with us.

Even when it’s obviously a falsified claim, it costs us money to investigate and hire a lawyer to deny the claim. That costs us about $25,000 and that’s for a claim that’s clearly bogus. Most watchdog organizations agree that around 10% of all property and casualty claims are fraudulent. These are the bad actors that drive up the costs for everyone in the industry and are ultimately a threat to our democracy. I hate them with a burning passion and you should too.

Feel Free

This is a challenging time for the gun industry. A wide range of factors are making it harder and more expensive to do business, but getting taken advantage of by a bad insurance company or a lousy agent shouldn’t be one of them. It’s in the interest of every American to make sure the firearms industry remains alive and well for this and future generations. If you have any questions about commercial firearms insurance, feel free to email me. I won’t sell you insurance (I’m not an agent/broker) but I’m happy to answer questions or send you to someone that can.

 

Jon Wayne Taylor
CEO, Action Underwriting, LLC
jon@actionunderwriting.com