INSURANCE MARKET RESPONSES TO THE 1980S LIABILITY REFORMS - AN ANALYSIS OF FIRM-LEVEL DATA

This article examines the insurance market effects of the 1980s tort liability reforms on general liability insurance. Analysis of over 60,000 observations of insurance market variables by firm and by state from 1985 through 1991 indicates that tort reform had a restraining effect on losses and premiums, with a net positive effect on profitability (i.e., a negative effect on loss ratios). The stabilizing effect on insurance market profitability was manifested, in part, by reducing the effect on current loss ratios of the high loss ratios of the mid-1980s in the reform states.