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"How Tort Reform Affects Insurance Markets"

New paper (PDF) by Georgia State insurance prof (and sometime PoL contributor) Martin Grace and Iowa business prof J. Tyler Leverty, for a Northwestern Searle Center conference, finds empirical evidence to bolster the commonsense view that the prospect that liability reforms will be challenged in court, and perhaps overturned, weakens the effect of those reforms in relieving strains in the liability insurance market. Abstract:

A critique of tort reform is that promised declines in insurance prices do not follow the enactment of significant tort reforms. This study examines whether insurance prices reflect the uncertainty of the reform since they are subject to judicial challenge. We undertake a two stage approach to investigate the effect of tort reform on insurance prices. In the first stage, we investigate the likelihood tort reforms will be found unconstitutional and the expected duration of reforms. We then use the estimated survival probability as an explanatory variable in a regression which estimates the effect of tort reform on state liability insurance markets. Our results indicate that as the estimated survival probability of tort reform increases, the premiums and volatility of losses in the insurance market decrease.

Prof. Grace also discusses at his own site, RiskProf.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.