Will Greed Destroy the Insurance Industry?
A LITTLE girl, just two years old, is suffering from seizures. She is rushed to the hospital. But the hospital turns her away. So does the next one she is taken to, and the next. There are no doctors in the emergency rooms. They say they simply can’t afford to practice there. In fact, literally thousands have left the medical fields recently. Businesses of all kinds, too, have been forced to close down. Town boards have resigned. Cities have closed their parks. Why?
The answer: insurance crisis. The United States is still reeling from a three-year crisis of skyrocketing insurance rates. Were you affected? At the least, the crisis struck you financially. You no doubt paid more for medical care and all kinds of goods and services, even higher municipal taxes.
Why the crisis? Well, to answer, let us first take a brief look at what insurance is. Ideally, it is a way to protect an individual from a heavy financial loss by spreading that loss evenly among the many who pay premiums. One type that has become increasingly important is called liability insurance. It protects you when the law deems you responsible for damage to people or property. Doctors, lawyers, businesses of all kinds, and even townships and cities can hardly function without a liability policy.
Vital as it is, though, several years ago liability insurance started to run dry in the United States. Insurance companies suddenly raised liability premiums by leaps and bounds, commonly doubling, quadrupling, even increasing them by tenfold! Often they simply cancelled policies outright.
Is the problem limited to the United States? No; insurance, it seems, has become a delicately balanced international network. American insurance companies are themselves insured by reinsurance companies, most of which are based in Europe. Many of them have collapsed or withdrawn because of the crisis. In fact, foreign economists have been known to liken the influence of the U.S. economy to the predicament of being stuck in a rowboat with an elephant. You may not depend on the elephant for survival, but you are certainly affected by his every move! So wherever you live, the insurance crisis has reached you.
What Caused the Crisis?
Not surprisingly, there is considerable disagreement over this question. There are two main camps of opinion. On the one hand are the insurance companies and many of their customers; on the other, lawyers, labor unions, and consumer-advocate groups.
The insurance industry says that it has become the victim of an America gone litigation-crazy. Judges and juries have become notorious for granting huge damage awards to plaintiffs. The powerful smell of money in the air has triggered an avalanche of lawsuits, with insurance companies left to pay the bill. In the above panel are some of the popular stories they tell to illustrate.
Critics of the courts feel that such cases reveal basic faults in the system. Manufacturers, for instance, don’t see why they should be held liable for accidents that occur because their product is worn out or misused. European manufacturers especially take a dim view of American lawsuits. In Europe, a plaintiff who loses his case is often forced to pay his own and his opponent’s court costs. Europeans thus hesitate to sue.
Insurers especially bewail the concept of “joint and several liability,” or the “deep-pockets” theory. If several defendants are named in a lawsuit, the court can force the one with the most money to pay for all the damages, even if he bore the least blame. The “deep pocket” usually means his insurance company.
According to the insurers’ side, the only real winners in the litigation explosion are the lawyers. Their contingency fees may earn them up to half of their client’s award, so they are driven to sue for huge sums. Insurance companies also feel that Americans today are unrealistic, expecting a totally risk-free environment or else ample financial compensation whenever it proves otherwise.
Many lawyers, lawyers’ associations, and labor unions disagree vehemently with this view. They charge that the litigation explosion doesn’t exist. The extravagant awards so widely reported in the news are frequently pared way down in appeals courts. Some complain, too, that the insurance companies rely too heavily on anecdotes such as those on page 11 for evidence or, worse still, on telling the stories in incomplete form.
Consider, for example, the last of the lawsuits in the panel “Frivolous Lawsuits?” The events as related are true enough, but they don’t tell the whole story. It is often omitted, for instance, that the skylight was painted over and quite indistinguishable from the roof at night and that someone had recently died in a similar accident at a nearby school. The accused school knew of the danger and was planning to change the skylight. Further, the burglar might more accurately be described as a prankster. He was a recent graduate of the high school and was trying to move the floodlight to illuminate a basketball court.
Critics charge that the insurance industry brought the crisis on itself. How? They lowered their rates drastically and even accepted bad risks in the late 1970’s, just to attract more premium dollars to invest at the high interest rates available then. But when the interest rates fell, insurers found themselves in trouble. They responded with huge rate hikes.
Attorneys further point to the $6.5 million advertising campaign mounted by insurers to denounce the litigation explosion, charging that it was just a ploy, first, to shift blame for high rates off insurers and, second, to fuel the drive for tort reform, the making of changes in the civil courts. Critics allege that the industry is only pushing for such reform so that it will not have to pay so much money to injured people.
In short, lawyers accuse insurers of greed.
Who Is Right?
No doubt there is some element of truth to both sides. Insurers readily admit that their investment policies of the past decade did indeed cause some of the current crisis. Still, they insist that rate hikes are their only means of survival in the current litigious atmosphere.
What about this litigation explosion? Does it exist or not? While both sides expertly hurl statistics at each other to make their points, the truth seems to lie somewhere between them. It seems fairly undeniable that Americans are the most litigious people in the world. In 1984, one out of every 17 Americans filed a lawsuit! Americans sue some 20 times more frequently than the Japanese. In fact, whereas Japan has one lawyer for every 15,000 people, the United States has one for every 375. Still, insurance companies do at times inflate the picture. For example, they report jury damage awards in terms of the average award size. Just one very large jury award will distort such a figure.
The only point both sides can agree on seems to be that human greed lies at the root of the problem. But as Time magazine asks, “Ah, but whose greed?” Lawyers denounce the greed of the insurance industry. Insurers denounce the greed of lawyers and a society using the court system as a lottery. To some degree, they both seem to have a pretty good case. This hardly seems surprising; after all, our modern society has become saturated with greed. It has grown to fit a famous Biblical description of our times.—2 Timothy 3:1-5.
Is There a Solution?
When it comes to solving the crisis, debate escalates to a fever pitch. The insurers’ side has pushed for reform in court law. The lawyers’ side has called for more regulation of the insurance industry by the government. Both sides have pressured state governments to promote their views.
So far, many states have enacted reforms, limiting jury awards and lawyers’ contingency fees and restricting the “deep-pockets” theory. Some states have tried to impose stricter regulations on insurance rates but without much success. Lawyers claim that the reforms only close the courts to the poor and injured, while protecting the insurance industry.
Have these measures helped? On February 9, 1987, The New York Times reported that the liability crisis had eased at last. However, many experts were skeptical of this “recovery.” “Absolute rubbish!” decried one Lloyd’s broker. A Swiss reinsurer noted: “The liability crisis is not yet cured, because the Americans are trying to approach it pricewise. The problem is deeper. It’s not just financial . . . but social.”
How true. And yet, just how much social change can we expect human agencies to bring about? The chairman of Lloyd’s of London himself blames insurers for “misleading people into believing that insurance can supply what in fact insurance cannot, that is to say, a cure for all humanity’s problems.” Clearly, a real solution to the insurance crisis would have to address some of humanity’s profoundest problems—the prevalence of human greed, the constant threat of calamities, and the need for a reliable system of justice, to name a few. Quite a task! Court systems, lawyers, and insurance are all vital needs in today’s world, but they are certainly not about to provide such a solution.
What, then, about mankind’s Creator? Will he always allow human greed to govern world affairs? Does he intend to let us live under the threat of calamity forever? Logic would suggest that the answer to both questions should be no. Better still, the Bible, a book with a perfect record of reliability, assures us that God will soon set up a world government based on justice. He will use it to rid the earth of both greed and calamity for all time!—Isaiah 32:1; Proverbs 1:33; 1 Corinthians 6:10.
[Box on page 11]
◼ Three lobstermen in the United States encounter a violent storm and are lost at sea. Their families sue the National Weather Service for its faulty forecast and are awarded $1.25 million.
◼ A woman strikes a runaway horse with her car, and the animal crashes through the roof, killing her. Her estate sues the auto manufacturer, whose protests that no car could withstand such an impact go unheard. The manufacturer must pay $1,500,000.
◼ A man attempts suicide by leaping in front of a subway train. He is struck and injured. He sues, claiming that the driver should have stopped sooner. The case is settled for $650,000.
◼ A sailor uses a 50-year-old winch with its safety guards missing and is injured. He sues the manufacturer, wins, and bankrupts the company.
◼ A man dives into the waves at the beach and seriously injures himself. He sues the local town and wins $6,000,000.
◼ A man is refused entry to a fashionable New York disco. He sues for mental distress and is awarded $50,000.
◼ An American construction worker fires a staple gun; a staple ricochets off the wall and injures him. He sues the manufacturer, a West German company that insists the man misused the tool. The man wins the suit and is awarded $1.7 million.
◼ A 19-year-old burglar tries to steal a floodlight from a high-school roof, falls through a skylight, and is severely injured. Sued, the school pays the youth $260,000, plus $1,500 a month.
[Box on page 13]
The Crisis Has Touched Lives
◼ A widely publicized march for peace came grinding to a halt, in part because required insurance could not be obtained.
◼ A single mother, struggling to support herself and her son, can’t even afford to buy the equipment she needs for her small cleaning business. Why? Her liability insurance has gone up more than 52 percent over the past two years.
◼ Obstetricians have been especially hard hit by malpractice suits and skyrocketing insurance rates. They have left the field in droves. For instance, 27 percent of obstetricians in California no longer deliver babies.
◼ In Sweden a supplier of ball bearings had to shut down. An expert blames the insurance crisis. Think of the jobs lost!
◼ In France a maker of kitchen appliances saw its insurance policy cancelled. The only new policy it could get was at 12 times the price!
◼ Faced with huge insurance hikes, some doctors have boycotted emergency rooms in protest, while others have simply quit. It’s like “practicing with a gun at your head,” said one of the latter.
[Picture on page 10]
How world economists see the influence of the U.S. economy
“Please don’t make waves!”
[Picture on page 12]
Lawyers claim that insurers are greedy
[Picture on page 13]
Insurers claim that lawyers and clients are greedy