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February 25, 2005


Reader letter: Times and malpractice insurance

From reader James Ingram:

As usual the Times makes the mistake of not sufficiently distinguishing between short term fluctuations in rates -- which indeed tend to reflect developments in financial markets -- and long term trends -- which tend to reflect underwriting costs. Insurance markets tend to undergo periods of relatively "soft" markets, during which premiums remain stable or fall due to competitive pressures, followed by precipitous corrections, during which rates "spike." In this they resemble other financial markets where periods of growth tend to end not gradually but with sudden plunges, a la 1987. To say that this years' 30% (or whatever) increase in premiums is not the result of a similar increase in claims is true only in a trivial sense. As the chart shows, in the long run premiums must reflect claims (and other underwriting costs)

Posted by Walter Olson at 05:05 PM | TrackBack (1)



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