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Tort Costs Plummet in 2006, So Says Insurance Industry Consultant

U.S. tort costs plummeted in 2006, admits insurance industry consultant, Towers Perrin in its 2007 update issued yesterday.  Given exploding prices both in the grocery store and at the gas pump, this latest admission is a welcome change from other “news.”  TP reports the largest percentage decrease in the 56-year period contained in their study and the first decrease since 1997, a decrease of 5.5 percent in 2006 from 2005.

Having panned TP’s objectivity and methodology in past years, we are wary of their conclusions generally. As in the past, TP concedes here that its study examines only one side of the U.S. tort system; the costs. It makes no attempt to measure the benefits of tort for consumers and the public. They do (somewhat disingenuously) say “any connotation that an increase in tort costs is undesirable is unintended.” As noted in the past, TP includes as part of its cost estimate administrative expenses that are commonly characterized as very inefficient. Half of the costs they report are not costs in any real sense; they are merely transfer payments from wrongdoers to victims. 

Given that this study is one-sided, based on faulty methodology and has no apparent purpose, what is the point of the update? Perhaps its purpose can be found in the “future implications” section of the study where TP opines that tort costs will rise in 2007, 2008 and 2009. That “nugget” may provide just what the enemies of our legal system need to carry on their campaign to limit the rights of victims to recover damages when they are injured.  However, before industry moguls pin their hopes on that prediction they should remember that in 2006 TP predicted by 2007 tort costs would hit their highest levels since 1987.(1)  As we have said in the past, when it comes to TP, don’t believe most of what you read.

(1) 2006 Update on U.S. Tort Cost Trends, Towers Perrin, www.towersperrin.com/tillinghast