How AI-Driven Insurance Could Reduce Gun Violence

Jason Pontin at WIRED: “As a political issue, guns have become part of America’s endless, arid culture wars, where Red and Blue tribes skirmish for political and cultural advantage. But what if there were a compromise? Economics and machine learning suggest an answer, potentially acceptable to Americans in both camps.

Economists sometimes talk about “negative externalities,” market failures where the full costs of transactions are borne by third parties. Pollution is an externality, because society bears the costs of environmental degradation. The 20th-century British economist Arthur Pigou, who formally described externalities, also proposed their solution: so-called “Pigovian taxes,” where governments charge producers or customers, reducing the quantity of the offending products and sometimes paying for ameliorative measures. Pigovian taxes have been used to fight cigarette smoking or improve air quality, and are the favorite prescription of economists for reducing greenhouse gases. But they don’t work perfectly, because it’s hard for governments to estimate the costs of externalities.

Gun violence is a negative externality too. The choices of millions of Americans to buy guns overflow into uncaptured costs for society in the form of crimes, suicides, murders, and mass shootings. A flat gun tax would be a blunt instrument: It could only reduce gun violence by raising the costs of gun ownership so high that almost no one could legally own a gun, which would swell the black market for guns and probably increase crime. But insurers are very good at estimating the risks and liabilities of individual choices; insurance could capture the externalities of gun violence in a smarter, more responsive fashion.

Here’s the proposed compromise: States should require gun owners to be licensed and pay insurance, just as car owners must be licensed and insured today….

The actuaries who research risk have always considered a wide variety of factors when helping insurers price the cost of a policy. Car, home, and life insurance can vary according to a policy holder’s age, health, criminal record, employment, residence, and many other variables. But in recent years, machine learning and data analytics have provided actuaries with new predictive powers. According to Yann LeCun, the director of artificial intelligence at Facebook and the primary inventor of an important technique in deep learning called convolution, “Deep learning systems provide better statistical models with enough data. They can be advantageously applied to risk evaluation, and convolutional neural nets can be very good at prediction, because they can take into account a long window of past values.”

State Farm, Liberty Mutual, Allstate, and Progressive Insurance have all used algorithms to improve their predictive analysis and to more accurately distribute risk among their policy holders. For instance, in late 2015, Progressive created a telematics app called Snapshot that individual drivers used to collect information on their driving. In the subsequent two years, 14 billion miles of driving data were collected all over the country and analyzed on Progressive’s machine learning platform,, resulting in discounts of $600 million for their policy holders. On average, machine learning produced a $130 discount for Progressive customers.

When the financial writer John Wasik popularized gun insurance in a series of posts in Forbes in 2012 and 2013, the NRA’s argument about prior constraints was a reasonable objection. Wasik proposed charging different rates to different types of gun owners, but there were too many factors that would have to be tracked over too long a period to drive down costs for low-risk policy holders. Today, using deep learning, the idea is more practical: Insurers could measure the interaction of dozens or hundreds of factors, predicting the risks of gun ownership and controlling costs for low-risk gun owners. Other, more risky bets might pay more. Some very risky would-be gun owners might be unable to find insurance at all. Gun insurance could even be dynamically priced, changing as the conditions of the policy holders’ lives altered, and the gun owners proved themselves better or worse risks.

Requiring gun owners to buy insurance wouldn’t eliminate gun violence in America. But a political solution to the problem of gun violence is chimerical….(More)”.