Legislators, Lawyers Caused Liability Mess

"Liability Issue: A Need to Find Right Balance" is only partly right in identifying causes for the current insurance crisis.

True, the insurance market is becoming more restricted in terms of coverage and capacity, and many companies cannot obtain or afford the coverage they desire or need.

However, the causes are deeper than simply the fault of the "deep pocket" theory, joint-and-several liability, or larger-than-anticipated losses.

Even if the insurers were only held responsible for intended coverage, they would be in trouble today.

The competitive underpricing for the last several years coupled with the decline in investment income would put them on shaky ground even absent the atrocious sums being awarded by the courts.

The fact that insurers are finding themselves responsible for claims for which no coverage was intended (or premium collected) only adds to the financial burden.

Reform of the tort system is going to be a long time in coming. Lawrence is correct that companies need to find more cost-effective means than insurance to protect themselves from the financial risk of losses.

The profession of risk management addresses itself to the prevention in frequency of losses and reducing the cost of losses that occur.

By identifying the potential for property, income, liability and personnel loss, and taking anticipatory (rather than reactive) action to control them, the risk manager allows his or her organization to rely less on insurance and, thereby, reduce the insurance cost.

Insurance is also one of the least cost-effective ways to pay for losses that occur. Many types of internal funding are much more effective and allow the organization to take fuller control of its own financial destiny.

Lobbying for legislative reform is good, but is a slow process. Many companies hire risk managers or risk management consultants so that cost-reduction efforts can begin now.


Risk manager, Transcon Lines

Los Angeles

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