Regulation by Liability Insurance: From Auto to Lawyers Professional Liability

Abstract

Liability insurers use a variety of tools to address adverse selection and moral hazard in insurance relationships. These tools can act on insureds in a manner that can be understood as regulation. We identify seven categories of such regulatory activities: risk-based pricing, underwriting, contract design, claims management, loss prevention services, research and education, and engagement with public regulators. We describe these activities in general terms and then draw upon prior literature to explore them in the context of five areas of liability and corresponding insurance: shareholder liability, auto liability, gun liability, medical professional liability, and lawyers’ professional liability. The goal is to develop a conceptual framework to guide qualitative research on liability insurance as governance for initial application to lawyers’ liability and insurance.

Keywords: Liability insurance, administrative regulation, risk, behavior, directors and officers liability insurance, car insurance, insurance for guns, malpractice insurance

JEL Classification: G22, K13, K23