Product Liability:

Insurance Rate Levels and Claim Payments During the 1970s and 1980s

HRD-91-108: Published: Sep 16, 1991. Publicly Released: Sep 16, 1991.

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Pursuant to a congressional request, GAO reviewed the possible effects of product liability costs and policies on the competitiveness of U.S. businesses, focusing on: (1) shifts in product liability insurance rates; (2) payments made on claims against product liability insurance policies; and (3) the extent to which securities analysts considered product liability in evaluating various publicly traded firms' investment potential.

GAO found that: (1) advisory product liability rates increased by about 195 percent from 1974 through 1976, remained relatively stable from 1976 through 1983, and increased by about 105 percent from 1983 through 1988; (2) from 1988 to 1990, the advisory rate receded by 27 percent; (3) industry officials believed that the most influential factors affecting the advisory rate were changes in the frequency and average cost of participating insurers' reported claims; (4) between 1974 and 1990, participating insurers reported over $632 million in claim payments against manufacturers' product liability policies issued from 1972 to 1988; (5) in 1990, those insurers were still reporting payments against policies that had expired at least 16 years ago; (6) securities analysts said that they used no standard approach for assessing how product liability problems may affect a company's stocks or bonds investment risks; and (7) securities analysts believed that, in evaluating the investment prospects of publicly traded businesses, product liability becomes a major factor in only a relatively few cases, but it was difficult for those analysts to project the magnitude of final liability claims and their impact on businesses in those cases due to limited information.

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