Fighting Fire With Fire

For basically the last three years, a specialist legal community has developed, which has become very expert and successful by bringing large scale litigation against commercial enterprises, said Richard H. Murray, chief claims strategist for Swiss Re in New York. The interview with Mr. Murray was conducted in early May.

As a result, the frequency of legitimately disputable claims is growing and has been growing for some time.

If there is news anywhere in this, it is that the wave of litigation change could have an effect on the recoveries of reinsurance, he said.

He said this specialist community is the engine of commercial litigation. I think its not unfair to call it a predator community in the sense that it is dedicated to finding deep pockets of whatever source they can in order to reward claimants and themselves.

That claimant community or predator community has learned that once you have squeezed the deep pockets of business dry, there is a whole new deep pocket field called insurance capital pools, and, in particular, large reinsurer capital pools, he said. Much of the focus of how suits are being stimulated, brought and concluded is now designed to get at the deep pockets of the insurers.

The goal of the insurance industry, certainly our goal at Swiss Re, is to align ourselves with others in the insurance industry to protect our assets and our policyholders, he said.

The defendants side of the equation, both the target companies and insurers, need to organize our actions as well as the claimants to effectively resist their efforts, he said.

Its hardly surprising with all of the storms in the economic environment and the opportunistic changes in the liability systems, designed to get at insurer assets, that we have a high degree of claims distress today.

Its not clear that the public welfare is served by maximum wealth transfer from the business and insurance communities to individuals or claimant corporations, Mr. Murray said.

There is a very nave assumption underlying everything the predators bar, the claimants bar, is promoting, that wants you to believe that this is a one-way economic systemthat the only thing that counts is how much do the injured parties receive, he said. Current liability trends in the United States are also rewarding parties who have not been injured.

This ignores the fact that that money has to come from somewhere, he emphasized.

As an industry, we have a lot of catch up to do to help the world understand that we process economics, we dont create money, he said. Theres something wrong with a system that rewards the plaintiffs attorneys to a greater extent than it rewards injured parties.

He said a recent Tillinghast report said the U.S. liability system represents something in excess of a 5 percent tax on payroll for the entire American population.

That is what is paid today and reflects claims from five to 10 years ago, he said. By the time we figure out what the cost of the liability system today is, in another 5-10 years, at the current escalating trends, it is more likely to be 10 percent of payroll, Mr. Murray said. There are very few things in society that cost 10 percent of national payroll, which are tolerated, he said.

He said that rivals the cost of the entire U.S. health care system.

Further, he said, less than 25 percent of the proceeds of tort recoveries end up in the pockets of people who have suffered economic or physical loss, which is a massively uneconomic system.

Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 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.