Considerations in Measuring the Relationship Between Tort Reform and Insurance Premiums

In response to a congressional request, GAO discussed the feasibility of evaluating whether tort reforms reduce liability insurance premiums or mitigate their increase. GAO found that: (1) although most reforms are intended to reduce claim settlement amounts and premiums, a few may increase the frequency of claims and premiums; (2) many reforms relate to specific types and claims, such as medical malpractice or product liability, and affect specific types of insurance; (3) usually tort reforms apply only to new cases entering the legal system and their impact may not show for several years; (4) some reforms have built-in sunset provisions that will abolish them in the future and may contribute to delays in the insurance industry's reaction to reforms; (5) factors unique to each state, such as state regulatory requirements and laws, insurance market competition, and other economic trends can affect insurance claims and premiums; (6) it is essential to determine whether tort reforms affect losses before considering their effect on premiums; and (7) the wide range of coverage and diversity of businesses purchasing insurance make it difficult to obtain an average premium amount that is consistent between states and years. GAO concluded that, although it is possible to develop an approach for measuring the effects of reforms on premiums, it will require a well-planned data collection effort over many years.