BPEA | 1998: Microeconomics

The Distribution of the Insurance Market Effects of Tort Liability Reforms

Patricia H. Born and
Patricia H. Born University of Connecticut
W. Kip Viscusi
W. Kip Viscusi University Distinguished Professor of Law, Economics, and Management - Vanderbilt University

Microeconomics 1998

THE MID-1980s marked a period of tremendous escalation in liability insurance premiums, particularly for medical malpractice, product liability, and environmental liability. Whereas some insurance lines, such as automobile insurance, were comparatively stable, premiums for general liability and medical malpractice insurance doubled from 1984 to 1986. Increased prices were accompanied by problems with insurance availability and insurance rationing. Many observers suggested that these substantial price increases had widespread economic effects. Motels removed diving boards from their swimming pools, pharmaceutical firms stopped innovation for products with high liability risks such as those for pregnant women, and entire industries, such as the private aircraft industry, were seriously threatened.