The economics of liability losses
No. 6/2004
The economics of liability losses - insuring a moving target
Liability systems throughout the world are growing increasingly costly, according to Swiss Re’s latest sigma report. The study, “The economics of liability losses – insuring a moving target,” examines the development of liability claims and its drivers.
Thomas Holzheu, senior economist at Swiss Re and co-author of the study, comments: “Growing liability claims costs have raised concerns among companies and their insurers throughout the world. Insurers must better understand the development of liability claims costs and factor this into their pricing.”
The dynamics of liability regimes
In the world’s ten largest non-life insurance markets, commercial liability claims totalled USD 84 billion in 2002, with USD 67 billion originating from the US alone. The relative size of insured commercial liability claims costs varies across countries, with the US leading at 0.64% of GDP. This is about three times the level seen in Europe’s largest economies.
In all major economies examined in the study, general liability claims and premiums have grown faster than overall economic activity. Long-term estimates suggest that claims are growing 1.5 to 2 times as fast as nominal GDP. Among the several reasons for this, the most important are social and legal developments. Insurers need to continually monitor these developments and factor them into underwriting.
The study also addresses general issues regarding tort systems. It identifies a clear need for reform particularly in the US, where less than half of the funds from litigation reaches victims. While this is mainly a US issue, the potential for US practices to spill over to other parts of the world exists. The commercial and political challenge is to stop these detrimental developments so that liability systems remain affordable.
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For further questions and copies of any language, please contact sigma@swissre.com.
