Canadian Underwriter

US tort costs skyrocket to US$233 billion in 2002

December 12, 2003   by Canadian Underwriter

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Tort costs in the U.S. hit the roof in 2002, climbing a record US$27.4 billion to US$233 billion, reports Tillinghast-Towers Perrin. This amounts to US$809 per person, an US$87 increase over 2001. Compared with 1950, tort costs have grown US$797 per person.
The culprit: asbestos lawsuits. The single largest factor in the increase is the reassessment of asbestos liabilities, which grew by US$11 billion last year, or one-third of overall tort cost growth. Other contributing factors include the rise in shareholder lawsuits, class action and large claim awards, medical costs due to personal injury cases and medical malpractice suits. Med mal costs are rising an average of 11.9% per year versus other tort costs rising an average 9.3% per year.
At the end of 2002, tort costs represented 2.23% of the U.S. GDP, the highest since 1990. “This is an important barometer of the international competitiveness of the U.S.,” says Steve Lowe, global p&c insurance practice leader for TTP. “Higher tort costs can have an adverse impact on U.S. business.”
The irony is that the U.S. tort system is not efficient when it comes to compensation less than 50 cents of every dollar awarded actually goes to injured parties, and only 22 cents of each dollar awarded pays actual economic losses of the victim.
TTP predicts tort costs could reach $1,000 per person by 2005. And new bases for lawsuits are cropping up, including investment management malfeasance.
For insurers, the rapid rise in tort costs plays havoc with reserving. “This environment will require insurers to both carefully monitor their prices and play closer attention to case reserve adequacy,” says Katie Cullen, head to TTP’s claim practice. Rate increases in liability lines, and reduced coverage in unstable liability lines are expected to result.

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