An essay on liability insurance and accident compensation and five papers on liability insurance
This essay is intended to be broad in scope. Therefore, inevitably, it touches on some issues which are not explored in detail in the articles listed above and which, for reasons of space, cannot be given the detailed attention they deserve here. There is much scope for further research. ' The essay is structured in six parts. Part 1 traces the historical development of liability insurance as an outgrowth of accident insurance, a broad miscellaneous class with its own origins in the revolutionary changes in industry, trade, and transport that began as the eighteenth century drew to a close. Part 2 analyses the problems that began to emerge once liability insurance became a class of insurance in its own right. This section shows, in particular, how liability insurers came to assume long-tail risks, exposures of a kind that were always regarded as uninsurable in the context of firstparty insurance. Part 3 looks at how insurers have responded to these difficulties and examines the technical problems they face in attempting to design contracts that satisfy both the security requirements of policyholders and their own need to price liability risks accurately and reduce their uncertainties to manageable proportions. Part 4 examines behavioural aspects of liability insurance and the issue of moral hazard: the possibility that the granting of insurance cover might promote opportunistic behaviour or modify human actions in a way that adversely affects the interests of insurers, or society as whole, or both. It is argued that this phenomenon takes on extra dimensions in the context of liability insurance, creating additional layers of uncertainty for insurers and greater potential instability for liability insurance systems. Part 5 examines a connected issue: the relationship between liability insurance and liability rules, especially those of tort law. Here we consider the extent to which the existence or availability of insurance impacts upon judicial and legislative policy, and the extent to which it should properly do so. The essay concludes, in Part 6, with a summary of the issues explored and an assessment of possible future developments in liability insurance markets. As part of this assessment the perceptions of the major stakeholders in the systems that employ liability insurance are considered, including liability insurers, the Government, the general public and the lawmakers. It is observed that these perceptions - as to the proper role of liability insurance, and what can be achieved effectively through its use - differ widely. The author concludes that all would benefit from a better informed and, perhaps, more realistic assessment of what liability insurance can do, and what it cannot. If the system is to remain stable, there is a need for a greater understanding of the problems of liability insurance, and the limits of its effectiveness, amongst all stakeholders in the tort/liability insurance system, including the lawmakers, the Government, the public at large and insurers themselves.