November 1, 2004 by Canadian Underwriter
While much has been written about the explosion of liability claims in the U.S., the trend has taken on global proportions, according to a new sigma study released by Swiss Re.
In “The economic of liability losses”, the U.S. does come out ahead in terms of the economic impact of general liability claims. In 2002, the US$66.7 billion in liability losses accounted for 21% of all non-life insurance losses, and amounted to 0.64% of gross domestic product (GDP). Australia also produced disturbing results, although figures are for 2001, with US$900 million in claims accounting for 15% of all non-life losses and 0.25% of GDP. In fact, while the average liability loss ratio for 1997-2002 was 99.7% in the U.S., it reached a whopping 124.2% in Australia.
France and Italy also posted high average loss ratios for the study period, at 113.2% and 102.0% respectively. However, the US$2.8 billion in losses in France accounted for just 9% of non-life losses, while in Italy, the US$2.3 billion in liability claims equaled 10% of total non-life losses.
Here in Canada, insurers paid US$1.3 billion, net of reinsurance (other country results are not on a net basis) for liability claims in 2002, or 7% of non-life losses, representing 0.18% of GDP. The average loss ratio in Canada between 1997-2002 was 73.5%.
For the top ten largest non-life insurance markets, insurers paid out US$83.8 million in general liability losses, or 16% of non-life losses, representing 0.37% of GDP. The average loss ratio across the ten countries for 1997-2002 was 98.2%.
“In all major economies examined in the study, general liability claims and premiums have grown faster than overall economic activity,” Swiss Re notes. “Long-term estimates suggest that claims are growing 1.5 to 2 times as fast as nominal GDP.”
While the figures support the need for tort reform, other factors also add to the need for change, specifically in the U.S., the study notes. For example, in the U.S., less than half of the funds from litigation reach victims.