Could Rising Insurance Premiums Eradicate Unlawful Police Conduct?
Ben Christopher writes in Pricenomics:
In the fall of 2013, the town council of Sorrento, Louisiana voted to abolish its own police department.
Despite the obvious drawbacks of going without law enforcement protection, the vote was unanimous.
Just two months earlier, a newly hired officer had gotten into a 100 mile-per-hour car wreck on the highway. It was later revealed that the same cop was already one of the town’s most zealous issuers of speeding tickets, hundreds of which were later thrown out in court.
But that was only the latest controversy to befall Sorrento’s men and women in blue. The previous spring, the department had been forced to fire two of its members—one, an assistant chief, for undisclosed reasons, and another, a rank-and-file officer for improperly using his Taser on a college student. This scandal, in turn, had come on the heels of three sexual harassment and racial discrimination lawsuits filed by former police officers against the chief of police himself.
Yet it was neither scandal nor lawsuit nor budget cut that finally compelled the town leaders to give their disreputable police department the axe. Instead, the death blow had come from a soft spoken man in Baton Rouge named Jerry Cronin.
Cronin is the general manager of Risk Management Inc., a for-profit risk pool that provides legal liability protection to two-thirds of the police departments in the state of Louisiana. As the organization ultimately responsible for the Sorrento Police Department’s ever-mounting legal bills, Cronin finally decided that enough was enough.
“We just didn’t feel like the supervision was adequate to protect our risk,” he explains. “They basically ignored underwriting regulations—the things we required them to do, they didn’t do.”
So Risk Management canceled the Sorrento P.D.’s coverage. Without legal liability insurance, a single patrol car accident, wrongful arrest, or workers’ compensation claim could bankrupt the government of the small town. In the face of such legal risk, the town council made the only choice they could. A month after Cronin’s decision, the department was gone.
Abolishing an unaccountable police agency with the stroke of a pen—police reform advocates can only dream of such power.
Over the last few years, police shootings in Ferguson, Chicago, Charleston, and countless other cities and towns across the country have brought unprecedented attention to the question of when police should use lethal force and how cities should respond to allegations of police misconduct. Though reformers often point to independent prosecutors and civilian review boards as possible arbiters of good policing, one unlikely change-agent has largely been left out of the conversation: the insurance company.
As the town of Sorrento shows, the financial corporations that provide legal liability insurance to police departments can sometimes succeed where activists and journalists fail. Because while police departments may be able to ignore protest and moral condemnation, they are less likely to overlook the appeal of lower insurance premiums or the threat of coverage termination. With ample financial resources, well-honed analytical capabilities, and a profit-driven focus on avoiding lawsuits, insurance companies might just be reform advocates’ best hope for bringing abusive police departments in line.
The basic premise behind law enforcement legal liability insurance is straight-forward: if a police department has insurance and it gets sued, the insurance company picks up the legal tab. This gives insurance companies a strong motivation to keep the departments that they insure out of court. In the words of John Rappaport, a law professor at the University of Chicago, this transforms the insurance companies into “surrogate regulators.”
As a rule, law enforcement agencies do not go out of their way to get sued. Police chiefs and city mayors certainly care about their legal liability. But according to Rappaport, insurance companies might care better.
“They have the profit motive,” he says. “The insurance company is the one that wants to turn around and put pressure on the police department to makes it rank-and-file officers behave better.”
In contrast, city officials have “a more complicated profile,” he says.
Aside from not getting sued, a police chief may also want to minimize crime, to keep the police union happy, or to stick to the department’s budget.
Imagine a department is offered a particular training program that promises to improve officer behavior and reduce the risk of lawsuit. But let’s say it also costs tens of thousands of dollars and is likely to irk the cops on the street who feel like they’re being told how to do their jobs. A police chief will have to prioritize these various concerns. Minimizing legal liability may not always come out on top.
An insurance company, on the other hand, doesn’t care about the crime rate or the union or the city budget. It just wants to minimize payouts.
“It’s not too hard to imagine scenarios, especially where a city government is not working particularly well, where the insurance company might have the edge [at minimizing risk],” says Rappaport.
This runs against the conventional wisdom. Up until just a few decades ago, most towns actually prevented their police departments from buying liability insurance. After all, the entire premise of this type of coverage is that law enforcement agencies are insulated from the consequences of their own risky behavior.
Economists call this concept “moral hazard” and it applies to all types of insurance. Someone with a policy on their car is less likely to buy an alarm because if the car is broken into, the insurance company will pay for the new window. A bank with FDIC-backing is more likely to make risky investments, because they won’t face any downside if those lousy bets go bust. Likewise, an insured police department might take fewer steps to reduce incidents of wrongful arrest, illegal use-of-force, or sexual harassment.
But beginning in the 1960s, concerns about moral hazard began to give way to concerns about litigation. . .
Continue reading. The loss-prevention programs described later are quite interesting.