“Liability costs have exploded,” he said. “We had an asset bubble, which captivated juries and judges. They saw wealth grow exponentially on the asset side and began to build that into jury awards. The asset bubble has burst, but not the liability bubble it helped create.”

Mr. Greenberg said that “the liability bubble has got to come down to earth if this industry is to have a future in many lines.”

He explained that “if the tort system was more definable, insurer reserve estimates would be a lot more precise. But until the tort systems costs are made more definable by reforms at the state and federal levels, insurers are going to have to continue looking over their shoulders to see how losses are developing.”

He added that while “those who have been injured deserve fair and reasonable compensation, damage awards should not be a prize all out of proportion to the harm done.”

He said the uncertainty of the tort system has resulted in soaring insurance premiums, shrinking coverage, lower returns-on-investment for insurers and increasing difficulty in attracting capital to the p-c industry–all of which are ultimately to the detriment of the public.

He also noted that despite double-digit price hikes, most classes of business are only now approaching the rate levels of a decade or so ago, adding that the idea that were in a “hard” market is relative if considered in a broader context.

In addition, premium hikes have not left insurers flush with extra cash, he noted. Indeed, Mr. Greenberg said that low interest rates and a poor equity market, combined with rising liability losses and reserve deficiencies have mired the industry in a “profitless recovery.”

Making matters worse is that the industrys single-digit return on equity has made it very difficult to replace the capital lost in the investment markets, Sept. 11 claims, and reserve boosts for prior-year liabilities. “Its hard to raise capital just to fill a hole in your balance sheet,” he said. “Why would anyone commit capital to that?”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 30, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.