Corporate and Statewide Perspectives on the Liability Insurance Crisis

The costs associated with liability insurance in the United States are rising dramatically and persistently, prompting calls for major revisions in liability statutes and the whole tort liability system.

Abstract

The costs associated with liability insurance in the United States are rising dramatically and persistently. Escalating medical malpractice premiums threaten the scope and availability of health care in many states. Increasing costs for automobile insurance have led to public referenda to cap premiums, in turn driving insurers out of practice in some states. Runaway litigation costs are prompting calls for major revisions in liability statutes and the whole tort liability system. Over the past two years, two independent system dynamics studies of the rising costs of liability insurance have been conducted. One study focused on forces driving rising settlement costs within a leading property and liability insurance provider. That study has resulted in a learning laboratory to help managers throughout the firm form a more systemic perspective on how established policies and practices within the firm might contribute to rising costs. The other study, done for the New York State Insurance Department, looked at the problem of medical malpractice liability from a statewide regulatory perspective. It was designed to provide help to the state legislature in setting the state's policy on rates over the next three years. This paper assembles some of the work done in these two independent studies, reports on their findings, and discusses their policy implications. Of particular interest are implications of the Internal and external system dynamics perspectives on the problem — where they agree, where they disagree, and where they help to illuminate each other.