May 30, 2008
How Tort Reform Affects Insurance Markets
Martin Grace (Georgia State-Insurance) & J. Tyler Leverty (Iowa-Business) have conducted a study entitled How Tort Reform Affects Insurance Markets (pdf). Here is the 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.
(Via Point of Law/Frank).
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