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'Bring Back Insurance Sanity'

September 03, 1986

Your editorial on California's liability-insurance crisis calls for treatment of the crisis' symptoms but does not examine the disease.

The disruption in the insurance market has not been caused by lack of competition, lack of regulation, or the insurers' limited antitrust exemption. The disease causing the disruption is the cancerous civil justice system. Premiums have increased and insurers have withdrawn from markets because of staggering losses and the lack of predictability in the tort system.

The editorial blames the current crisis on a lack of competition among insurers. But it then contradicts itself by arguing that the present market problems have been caused by companies competing for business by selling policies at bargain rates. In fact, liability insurance is sold in a highly competitive market, which works to keep insurance rates low.

Strict regulation of insurance rates will not cure the problems of cost and availability. States with strict regulation of insurance rates have suffered from the same problems that have plagued California. The reason is that those states and California both suffer from a civil justice system that is out of control.

The editorial's statement that insurers are not prohibited from setting rates or dividing markets is not accurate. The insurance industry has only a limited exemption from federal antitrust laws. These laws do prohibit insurers from conspiring to set rates or divide markets. It should also be emphasized that the U.S. Department of Justice has found no evidence of collusion in the present cycle of rate increases.

The conclusion that the insurance industry bears the primary responsibility for the present crisis should be reexamined in light of the Little Hoover Commission's recent report, which found that "the overriding problem which has driven the current crisis is the uncertainty in predicting risk." The commission went on to recommend both insurance and tort reforms.

Legislation is being passed this year to regulate cancellation of policies and to require insurers to report more data. But even though 62% of California voters approved Proposition 51, the Legislature continues to refuse to pass meaningful tort reform. Until steps are taken to control the size and number of lawsuits, California's liability-insurance malady will persist.



Sorich is assistant vice president of the National Assn. of Independent Insurers.

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