Patricia Born

The effect of 1980s tort reform legislation on general liability and medical malpractice insurance

A large number of states adopted tort reforms in the mid-1980s to limit the dramatic surge in insurance losses and premiums. Evidence based on liability insurance data by state indicates that these reforms substantially influenced general liability insurance. The levels of losses, premiums, and loss ratios (a measure of insurance profitability) all reflected the impact of the reforms. The large-scale reform efforts in 1986 were particularly influential. Medical malpractice insurance was much less sensitive to the reform efforts.

THE DISTRIBUTION OF THE INSURANCE MARKET EFFECTS OF TORT LIABILITY REFORMS

This paper considers the effect of tort liability reforms on medical malpractice and general liability insurance markets. The primary reforms analyzed were damages caps and other liability reforms. These reforms decreased premiums, reduced losses, and improved the profitability of insurance companies based on evidence using detailed individual company by state data from the National Association of Insurance Commissioners. Liability reforms reduce losses by much more than they diminish premiums. Moreover, the increase in profitability is concentrated disproportionately among the least profitable firms in the industry, thus limiting the role of competition in promoting the pass-through of cost reductions during this sample period.

Medical Malpractice Insurance in the Wake of Liability Reform

This article examines the effect of the liability reforms on medical malpractice insurance over the 1984-91 period. This is the first study to use data by firm and by state for every firm writing medical malpractice insurance over that time period. The liability reforms increased insurance profitability (that is, decreased the loss ratios), where the main mechanism of influence was through decreasing losses. The quantile regression estimates imply that the greatest effects of liability reform are on the most unprofitable firms and that the effect is not uniform across the entire market. This pattern is consistent with the other principal finding, which is that damages caps appear to be most influential.

Insurer Profitability in Different Regulatory and Legal Environments

This paper examines the variation in insurance company financial performance across states with different legal and regulatory environments. These environments are distinguished by a diverse set of measures created by the states to address problems in the insurance area. Using firm–level financial data for the period 1984–1991, quantile regression methodology is used to describe the differential relationships between profitability and these measures. The results indicate that the distribution of profitability is only weakly related to insurers’ regulatory and legal environments, and is significantly related to other factors, such as the size of the firm and the effective number of competitors.

The Effect of Regulation on Insurance Pricing: The Case of Germany

This article analyzes the impact of policy form regulation on the unit price of insurance and determinants of premium changes using the 1994 deregulation of the German property–liability market as a natural experiment. Our result show that policy form regulation did not increase prices above competitive levels. Factors influencing premium changes are significantly different for the two time periods, pre‐ and post‐deregulation, indicating that regulation affects insurance pricing. Focusing on highly competitive lines after deregulation, we find a significant price decrease, and this decrease is offset by higher prices in the remaining other lines.

Should I Stay or Should I Go? The Impact of Natural Disasters and Regulation on U.S. Property Insurers’ Supply Decisions

In this article, we identify the main factors that drive insurers’ willingness to offer coverage in catastrophe‐prone property insurance lines. We compare insurers’ supply decisions in personal and commercial lines, with an emphasis on insurers’ responses in the aftermath of natural disasters. Our empirical results suggest important policy implications with regard to improving the availability of insurance against catastrophic threats. Concerning the impact of regulatory constraints, we present empirical evidence that certain regulatory responses may unintentionally impede insurers’ willingness to provide coverage against natural disasters.

The Differential Effects of Noneconomic Damage Cap Levels on Medical Malpractice Insurers

This study examines the effect of tort reform on medical malpractice insurers with an emphasis on the effect of cap levels on noneconomic damages. While previous research finds that caps on noneconomic damages have a beneficial effect on insurer performance, these studies do not evaluate the effects of caps of varying size. Examining insurer data from 1997 to 2007, we test whether cap levels matter. We find that insurer performance generally improves when the cap is set at

The Dynamic Interactions between Risk Management, Capital Management, and Financial Management in the U.S. Property/Liability Insurance Industry

250,000, but caps exceeding

Catastrophe Modeling in the Classroom

250,000 are not associated with improved performance, as they are possibly not binding on award amounts.

The General-Liability Reform Experiments and the Distribution of Insurance-Market Outcomes

This study examines empirically how risk management, financial management, and capital management are related to each other in the property/liability insurance industry, thereby reflecting interactions in managerial decisions such as the choice of derivatives and reinsurance use, the allocation of asset risks, the determination of underwriting activities and liability risks, and the adequacy of capital levels. This research contributes to the literature by adopting structural equation modeling to capture not only the dynamic interactions among capital management, financial management, and risk management, but also the effects of internal integrated factors or external regulatory factors on these managerial decisions. Among the empirical findings of this study, it is shown that risk management, capital management and financial management should be assessed under an integrated framework as emphasized in the concept of enterprise risk management. In addition, regulatory requirements embedded in the insurance industry might play an essential role in the integration of managerial decisions.