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Injury litigation and liability insurance dynamics
1Manhattan Institute for Policy Research, New York, NY 10012.
Science (New York, N.Y.)
|October 2, 1987
Summary
Liability insurance costs are rising while coverage falls due to market inertia and forecasting errors. The primary driver is the expansion of liability law, creating a crisis in the insurance market.
Area of Science:
- Economics
- Law
- Insurance Studies
Background:
- Recent years have seen sharp price increases in liability insurance.
- The real amount of coverage provided by these policies has simultaneously declined.
Purpose of the Study:
- To investigate the factors contributing to the current crisis in the liability insurance market.
- To identify the underlying causes of increased insurance prices and decreased coverage.
Main Methods:
- Analysis of market dynamics in the insurance industry.
- Examination of factors such as financial inertia, forecasting errors, and industry-wide reactions.
- Assessment of the impact of legal expansions on insurance markets.
Main Results:
- Market adjustments in liability insurance have been abrupt.
- Financial inertia, repeated forecasting errors, and herd behavior among insurers contribute to market volatility.
- The expansion of liability law is identified as the most probable root cause of the current insurance crisis.
Conclusions:
- The current crisis in liability insurance is primarily driven by the expansion of liability law.
- Industry-specific factors like inertia and herd behavior exacerbate market instability.
- Understanding these dynamics is crucial for addressing the challenges in the liability insurance sector.