Business - Flying the flag for change.

(From Reinsurance)

By Isobel McCalman.

The tort system has long been problematic in the US but the insurance industry is becoming increasingly concerned about the way it impacts its business. Unpredictable liability costs, coupled with a sluggish economy have strained the property & casualty (P&C) industry financially, according to the Insurance Information Institute (III). Figures from AM Best show that P&C insurers paid $30.5bn more in claims and expenses than they collected in premiums in 2002.

Rising costs

Excess casualty carriers are having to pull back on underwriting which means excess casualty capacity has become expensive and scarce, with certain risks such as construction defects and medical malpractice becoming so volatile they are almost uninsurable in some regions. At a meeting of the P&C joint industry forum, held in New York in January, Ronald Pressman, president of GE Insurance and chairman, president and chief executive of GE Employers Reinsurance said: "The cost of the tort system is the equivalent of taxation without representation at its most basic level." He attributes a large part of the increase in health care costs to abuse of the medical malpractice system.

Those in the industry who are arguing for a change in the system call for two levels of change. One is legislative tort reform at state and federal levels. The other is rigorous risk management. The best hope for reform at a federal level currently, according to an III paper, Tort excess: The necessity for reform from a policy, legal and risk management perspective, lies with halting class action abuse, reforming (and capping) compensation in medical malpractice lawsuits and bringing some final decisions to the largest tort problem in the US - asbestos litigation. It also considers that the US Supreme Court opinion in Campbell v State Farm in April 2003, where the court said that a $145m punitive damage award was excessive, moved the nation closer to guidelines for controlling punitive damages.

The court said that few awards exceeding a single-digit ratio of punitive compensatory damages would satisfy due process.