The First Liability Insurance Cartel in America, 1896-1906

Abstract

This article studies the rise and fall of the first liability insurance cartel in the United States. In 1886, insurance companies in America began selling liability insurance for personal injury accidents, primarily to cover business tort liability for employee accidents at work and non-employee injuries occasioned by their business operations. In 1896, the leading liability insurers agreed to fix premium rates and share information on policyholder losses. In 1906, this cartel fell apart. Although largely forgotten until now, the rise and fall of this cartel confirms the expectations of both cartel theory and past studies of insurance cartels, largely in fire insurance, showing how insurers engaged in unstable price-fixing efforts and shared information to better estimate future claims costs. Moreover, this liability insurance cartel offers a deviant case for standard accounts of how law and legal institutions influenced industrial organization in the United States at the turn of the twentieth century.