Study: Tort reforms save policyholders money

Chris Rizo Sep. 24, 2008, 12:08am

J. Tyler Leverty

IOWA City, Iowa (Legal Newsline)-Tort reform efforts have saved American policyholders money, but just how much depends on where the laws pass, a university study found.

The study by University of Iowa Finance Assistant Professor J. Tyler Leverty considered tort reform laws passed by state legislatures. He looked at laws that cap awards, which save insurance companies money and
help reduce premiums for consumers.

Leverty and Georgia State University Risk Management Professor Martin Grace examined the148 tort reform laws passed by state legislatures between 1985 and 2006.

Of the laws, 40 were either struck down by courts or repealed in later legislative sessions.

"When a state legislature passes tort reform law, insurance companies look at the probability of the law passing judicial muster," Leverty said. "If it's probable the new law will hold up to legal challenges, then they adjust their premiums. But if they believe there's a low probability the law will survive, then they rationally do nothing."

Leverty said in Ohio and Illinois, where tort reforms were enacted, struck down, and re-enacted more than once between 1985 and 2006, insurers take a more cautious approach to cutting premiums.

"Given that record, any rational insurance company operating in Ohio or Illinois will not immediately respond to tort reform laws passed by those legislatures," Leverty said.

Instead, he added, insurers determine the likelihood of the law's final legal status before adjusting premiums.

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