Tort Reform

90% of insurance press falls into three categories:

1. Puff pieces about some industry grandee or cat product “innovation”

2. Chicken Little Tales about how some legislative catastrophe is just around the corner (climate change is big, as is whining about the lack of US tort reform)

3. SHOCKINGLY boring actuarial stuff.

#2 is the intellectual trap. You think you’re doing a good job because you think you’ve identified a neato risk nobody has priced in.


Insurance folks are meant to be paid to assess risk. But risk isn’t something you see and touch, have drink with and that gets punched out by that drug dealer because it touched his girlfriend in the strike zone at a bar late that night in Vegas last year.

No, risk is a helpful intellectual framework in which to think about things that might happen. You might think that this is a profession for people who are good at figuring out what risks are out there.

You, my friend, could not be more wrong.

(Exaggeration for effect alert)

Insurance isn’t about assessing risk. Insurance is about getting on oversubscribed deals, writing more in cyclical upswings, having low expense ratios and conservative bond portfolios and not being played for a sucker by a broker. People who assess risk don’t write anything.

Not that you should have a team of died-in-the-wool morons running your portfolio, mind you, but you could probably get away with it if you had a microscopic expense ratio and laid ¾ of them off in a soft market.

But that’s barbaric. My point is that people that think too much about stuff don’t write any business – imagining ways something could go wrong is easy. I had a prof in U that said MBA programs are about teaching people a hundred million reasons to say no to ideas. Living with risk is the real skill.

So all this whining about Tort Reform by insurance companies is a red herring. The market price will adjust if claims blast off into the sky because of climbing tort expenses.

Otherwise, you’re still making money on it, so why waste your breath?