Causes of the liability insurance crisis

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Science  12 Feb 1988:
Vol. 239, Issue 4841, pp. 737-741
DOI: 10.1126/science.3340855


In this article the reasons for recent dramatic premium increases for liability insurance are explored by examination of available data on industry premiums, losses, and expenses. The suggestions that the premium increases were primarily caused by collusion among insurers, cyclical behavior, or systematic errors in forecasting losses are rejected. Instead, the evidence indicates that the jump in liability insurance premiums is most plausibly due to the growth in the discounted value of expected liability losses.