Liability dynamics
One of the major challenges posed by the evolving risk landscape are negative developments in the dynamics of liability regimes. These developments are predominantly observed in the US but also increasingly starting to affect Europe and the rest of the world.
Against this backdrop, corrective actions for both risk assessment and claims management are required. Especially in the US, the conditions in the claims environment have changed dramatically. Many sectors of liability litigation and the liability regimes process are being transformed from an objective application of the principles of justice and equity into a system committed to wealth transfer.
Impact on the industry
The changes have serious implications for commerce in general - at current levels, US tort costs represent an annual 5% tax on wages and therefore inhibit and distort economic activity. The system is also inefficient, with the intended beneficiary receiving less than half of the damages awarded, as was reported in a 2003 study on US tort costs by Tillinghast-Towers Perrin. Furthermore, less than half of the awards reflect economic costs, the rest goes to non-economic harm and punitive damages.
The impact on the insurance industry is equally dramatic. Existing business models need to be thoroughly reviewed. The past is no longer predictive of the future and established methods of assessing risk by analysing and modelling past events and behaviours are no longer sufficient. In light of the various changes to the risk landscape, losses need to be reassessed and, more importantly, claims management needs to undergo changes in order to resist opportunistic and unfounded demands.
Swiss Re's role
As a leader in managing capital and risk and to protect our clients' and stakeholders' long-term interest, Swiss Re is committed to analysing the evolving conditions in today's liability regimes. In joining forces with our clients we can lead the insurance industry to ensure that insurance coverage is adequately defined and communicated.
Together with our clients Swiss Re is well positioned to take a leadership role in developing new techniques for managing liabilities and reducing the excesses of liability regimes to ensure the long-term viability of insurance.
To help identify and respond to the changing conditions, Swiss Re created a new position of Chief Claims Strategist and subsequently appointed Rick Murray in October 2002. Under his leadership, Swiss Re started to implement necessary changes in its approach towards claims and liability management. While adhering to its long-standing principle of willingly and promptly paying all valid claims, Swiss Re has the competence and resolve to resist unfounded claims demands and, as appropriate, support its clients in resisting such opportunistic or unfounded demands.
"Swiss Re has a long-standing principle of willingly and promptly paying all valid claims. Statistics show that Swiss Re pays more than 99.9% of all claims without contesting them. This principle will not change."
Richard Murray
Chief Claims Strategist, Swiss Re
Publications:
-
The May 2008 edition of "The Review Worldwide Reinsurance" contains a special leadership debate focusing on the compensation culture developing across Europe and how public policy shifts surrounding this will impact (re)insurers:
The Review: Tort Leadership
-
Report from the 2006 International Liability Regimes Conference
- Sigma study: "The economics of liability losses"
Related links:
- National reports on the development of collective actions
- Podcasts from the Dec. 2007 Oxford / Stanford Conference on the Globalisation of Collective Actions
- EU Commission: comparative studies on collective redress, incl. national reports from the EU-25 (plus Australia, Canada, USA)
