Health care, insurance costs, and the right to sue for damages in court are all especially critical issues to people suffering from asbestos-related diseases, such as mesothelioma. Advocates for “tort reform” — which usually caps damages and places restrictions on filing personal injury lawsuits — claim that these limitations on tort will make health care and insurance more affordable. As I’ve written in several recent blog posts, however, we can see in the states that have passed “tort reform” laws that the cost of health care does not go down at all after tort is “reformed.”
But what about insurance? Tort reform advocates say that the cost of liability insurance hurts business and restricts economic growth. They claim that tort reform will, therefore, grow the economy and increase jobs.
In the last blog post I said “the tort system is not the cause of insurance premium increases in recent years.” This is an important point to understand, because much of the cost alleged to be generated by personal injury and malpractice lawsuits is in the form of insurance increases.
Insurance companies love to blame the cost of litigation for increases in liability and malpractice insurance. But according to Americans for Insurance Reform, the real culprit is the investment cycle.
Insurance companies make most of their money from investment income. For this reason, a profitable investment cycle creates a “soft” insurance market. That is, insurance companies underprice their policies and accept high-risk clients in order to get more dollars to invest. But when interest rates fall and the stock market plummets, the insurance market becomes “hard.” In a hard market, premiums are jacked up and coverage is reduced.
As you might guess, we’re in a hard market right now.
Whenever markets get hard, insurers try to cover their losses by blaming personal injury litigation. Americans for Insurance Reform tracked the cycle of “soft” and “hard” markets, and said that if one believes big jury awards are driving up the cost of insurance, “one would have to accept the notion that juries engineered large jury awards in the mid-1970s, then stopped for a decade, then started again in the mid-1980s, stopped 17 years and the started again from 2002-2006. This is ludicrous, and not true.”
Insurance companies also have administrative and claims-handling costs, and some benefits are paid for non-tort losses, and sometimes these costs are mixed into the alleged cost of the tort system.
The most important thing to remember is that if “tort reform” means the people responsible for an injury don’t have to pay for it, the cost of the injury doesn’t go away; it just gets passed on to someone else. For example, if the responsible party’s liability insurance doesn’t pay for the injury, medical bills get passed on to the injured person’s health insurer. Or the bills may be paid by a government program, or sometimes care providers and hospitals have to absorb the cost and raise their rates to make up for it.
Barbara O’Brien
June 1, 2009
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