The Shifting Terrain of Risk and Uncertainty on the Liability Insurance Field

Recent sociological and historical work suggests that insurance risks often are not reliably calculable, except in hindsight. Insurance is "an uncertain business," characterized by competition for premiums that pushes insurers into the unknown. This essay takes some preliminary steps that extend this insight into the liability insurance field. The essay first provides a simple quantitative comparison of U.S. property and liability insurance premiums over the last sixty years, setting the stage to make three points: (1) liability insurance premiums have grown at a similar rate as property insurance premiums and GDP over this period, providing yet another piece of evidence supporting the view that the growth in U.S. liability costs represents an ordinary consequence of a growing economy rather than an unusual or pernicious feature of U.S. culture; (2) there are systematic variations in the rate of growth in insurance premiums over time that are more pronounced in liability insurance than in property insurance; and (3) because the media coverage of liability insurance intensifies during the periods when liability insurance premiums increase sharply, the widely held beliefs in the "litigation explosion" and related myths may result, at least in part, from generalizations drawn from a systematically biased set of observations. The essay then moves in a more qualitative, suggestive direction, exploring the changing terrain of risk and uncertainty on the liability insurance field, closing with the admittedly speculative conclusion that the insurance underwriting cycle might be both a cause and a consequence of liability insurers' efforts to push the liability and insurability frontier