July 1985 The Roemer Report

INSURANCE AND THE LITIGATION BOOM:

Today trucking journals seem to be loaded with stories on the tight insurance market. Out side of a few helpful hints, nobody really seems to have a solid answer for controlling the spiraling cost of property and casualty insurance for motor carriers. Now that the insurance cycle has turned, the major insurance houses are pricing their coverage (when they choose to make it available) via traditional underwriting standards rather than on a "cash flow" basis. If you're looking for a "heavy" in these big premium increases, try our legal system…specifically the contingency fee system that encourages lawyers to seek the highest possible damages. The fact is that Americans have come to look upon a civil suit against a company as an irresistible lottery. Last year, one in every fifteen Americans fi led a private civil lawsuit. An incredible 16.6 mil lion private civil suits were tried in state courts… twice the number of ten years ago. Here are some of the biggest lottery winners. In 1983, 360 personal injury cases were settled with awards of one million dollars or more…a whopping thirteen times the number in 1975.

THE REFRIGERATOR RACE: Here is a sample case from a recent issue of Forbes magazine to highlight the absurdity of today's litigation and jury awards. A 41-year-old body builder attempted to demonstrate his masculinity by entering a race with a refrigerator strapped to his back. He alleged that one of the straps came loose during the race, injuring him. He sued everybody under the sun, including the strap maker. The jury awarded this character one mil lion dollars. Last year the property and casualty insurance industry paid out $116 for every $100 it received in premiums. Worse yet, the reinsurers, who take most of the unpredictable risks, paid out $141 for every $100 in premium income. Basi­cally, the courts have expanded the definition of liability to the point where insurance firms feel they increasingly face unlimited financial exposure. Since insurance companies, like truckers, are not in the business of losing money, many are simply deciding not to write coverage for certain industries -- regardless of the price. This flight of insurers and re­insurers is most pronounced in business areas where the risk of winding up in the courts is the greatest. Trucking is high on this list.

A SOLUTION TO SPIRALLING RATES: Many experts say there is simply no way for the insurance industry to fully emerge from the legal and economic quicksand unless Congress or state legislatures move in to impose order on a legal system that seems to be destroying the property and casualty insurance markets. Last year, the industry lost a whopping $3.8 billion. Experts say the easiest -- and most unpopular -­ solution would be to terminate or severely limit the contingency fee system used by lawyers. Critics charge that it creates a powerful incentive to go after plaintiffs with perceived deep pockets. America is the only country which has such a contingency fee system. Don't hold your breath for a change. But expect insurance firms to increasingly limit the expense via: higher deductibles, lower protection levels, and the exclusions of some items altogether…such as legal defense costs.

FALLING INTEREST RATES, RISING ECONOMY: Despite tired cries of an impending recession, the recovery continues to chug merrily along. Falling interest rates have fueled the latest round of improvements. But farmers and some manufacturers are not yet smiting. The ruthless dollar keeps hammering those sectors, with very little relief in sight. Still, now that last summer's economic chill has finally passed, the overall outlook is surprisingly upbeat. Blue Chip Indicators newsletter recently pol led 50 economists on their 1986 forecasts. Only two predict a recession, and six believe the nation's growth rate will exceed President Reagan's 4% projections. Since the Fed loosened its purse strings this spring, auto and housing sales have improved sharply. Some economists see construction, in general, moving full-strength ahead through the rest of this year. Retailers are also optimistic, poised on the verge of a possible second sales wave. Many corporations are hesitating to substantially boost plant and equipment investments until profits climb. But inflation and unemployment -- two former foes -- have faded into gray.

For the first time this decade, some rust belt cities are reporting a refreshing economic climate.

BEYOND UNIONISM: The evidence of union decline is everywhere. Forty years ago, nearly a third of all non-farm workers were organized. But that share has dropped to less than a fifth, and is expected to slide through the rest of the century. By all indications, employee dissatisfaction is running high. Workers are speaking up, tackling disputes previously left to grievance committees. And, as union muscle· sags, state laws are toughening. The U.S., like Europe, is turning to employment legislation -- especially in the area of worker protection. How will the government's deeper labor involvement affect employers? It will both help and hurt them. On the plus side, unions will no longer dictate wage and salary decisions.

But new regulations could drain corporate dollars by imposing major revisions in hiring and firing practices…This move toward expanded employee rights is in tune with the times. Today's worker wants more than a regular paycheck. He or she wants to participate in the company's overall objectives and to find personal meaning in his or her job. Pacesetters in the new labor climate are companies committed to employee well-being. With or without union pressure, they pay competitive salaries and benefits, involve workers in decision-making, and provide avenues for personal and professional enhancement.

ROLLING ROADBLOCKS: Police patrols in several states are using potent new tactics to enforce the 55 mph speed limit. Besides increasing police presence and radar use, at I east two states have introduced "rolling roadblocks" -- from two to four patrol cars travel ling abreast at the maximum legal speed. The result, on Maryland and Massachusetts interstates, has been drivers locked bumper to bumper in slow streams of traffic, miles long. Why such a drastic cap on speeding? Congress built some clout into the 55 mph law: Any state in which more than half the drivers on major highways are speeders could lose up to 10 of its federal highway construction funds. Data from road-monitoring equipment are collected and averaged to determine statewide traffic volume and speed. This year Maryland, Vermont and Arizona were noted for excessive speeding rates, and preliminary studies in Massachusetts revealed similar conditions. But no state to date has forfeited any funds. Arizona, with other western and largely rural states, continues to question the fairness of a national speed limit. Meanwhile, surveys show the average driver putting h ls "pedal to the metal" whenever possible.