Speaking at Town Hall Los Angeles recently, Lord Levene, chairman of Lloyd’s of London insurance market, said that the compensation culture and increasing barriers to free trade cause serious harm to industries that support economic and social progress.
Levene also announced the results of a joint Lloyd’s of London/Town Hall Los Angeles survey of Los Angeles business leaders which showed that 95 percent believe the cost of litigation is a drain on the economy, and 94 percent are concerned about the potential impact of liability costs on their own business or industry.
Addressing the members, Lord Levene said, “The US and the UK have a common bond to see our intertwined economies do better. But barriers to trade, such as those that affect the insurance industry, and actions that drain an economy, such as excessive litigation, hold back growth and progress.”
Levene said that tort reform was urgently needed to combat growing litigiousness in the US, which ultimately resulted in skyrocketing premiums for policyholders.
“My point is that today’s culture is a brake on enterprise and innovation,” he said. “The fear of being sued is making everyone more and more cautious—to the detriment of everyone. This new culture does more than simply sap the will of the risk taker. It corrodes the economy.”
He said that at current levels, US tort costs are equivalent to a 5 percent tax on wages. At this rate of increase, by 2005 tort costs could equal $1000 per citizen per year.
Lord Levene also called for an end to the requirement in US legislation for Lloyd’s to hold collateral to cover 100 percent of gross liabilities in the US in trust funds. These regulations are discriminatory as US companies are not required to post the same level of collateralisation. In practice, this means that Lloyd’s currently has about $9 billion tied up in trust funds in the US, when it is already well-regulated, has a great track record, and pays US claims out of funds held in the UK. He said this was an example of a trade barrier that harms policyholders by limiting choice and increasing costs, while creating inefficiencies and obstacles to prosperity.
Levene said, “Lloyd’s, who has stood by the US in good times and bad, is treated in the same way as a new kid on the block. Is that fair? Far more crucially, how does it help the American entrepreneur, who is looking for insurance to cover a new business, if Lloyd’s and other reputable foreign companies are not competing on a level-playing field?
“This barrier is anathema to the culture of enterprise that made America powerful and rich. It grates against the principles of free trade and competition. And it harms American business and consumers.”
Lord Levene highlighted the fact that Lloyd’s has had an historic relationship with the United States, from covering a large portion of the costs of compensation and rebuilding following the 1906 San Francisco earthquake, to paying over $4 billion in claims following Sept. 11. Indeed US Secretary of the Treasury, John Snow, recently praised Lloyd’s in how it “stepped up to the plate” and honored its obligations following Sept. 11.
“Over the years we have grown—especially here in the States,” Levene said. “Quietly, Lloyd’s has been a helping hand when disaster has struck. I’m proud to say that we have always kept our word and honored valid claims.”
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