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Insurance and Expanding Systemic Risks

image of Insurance and Expanding Systemic Risks

This comprehensive study responds to the growing concerns of economic, financial, political and social actors regarding the ever increasing exposure to new expanding risks. These risks are particularly related to natural disaster/environment pollution, technology, health and terrorism. For insurers the difficulty is encountered in adequately appraising and covering the potential liability stemming from these risks. It also sketches out some policy recommendations for decision makers in governments and in the business community on how to limit, prevent and manage such risks. In this perspective it will constitute a unique reference work for the attention of both OECD countries and emerging economies.

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Expanding Liability for Systemic Risks?

Although the main focus of this study is on the implications of newly emerging systemic risks for the insurability of those risks, the importance of developments in the legal system will also be underlined Indeed, one consequence of increasing systemic risks will be the fact that more accidents may obviously happen – accidents, moreover, with a higher damage potential. One (important) way that the consequences of these accidents can affect insurers is through the use of liability law. Indeed, the first question that will often arise when a group of persons is victimised as a result of a systemic risk, is whether a third party can be made liable for the consequences of an accident. The legal tool to force the third party to pay compensation to the victim is obviously liability law, also referred to (in some legal systems) as tort law. As a result of newly emerging risks, in many countries there has been a legal trend towards expanding liability. Indeed, in many legal systems legislators and judges have become increasingly sympathetic to the interests of victims and have therefore tried to accommodate them as much as possible so that they could get compensation for their losses via liability law. The tools to achieve this goal were given either by the legislator or by judges, in the latter case, by means of broad victim-friendly-interpretations in case law. Although this trend towards an expansion of liability law may to a large extent have accommodated the interests of victims, the other side of the medal is obviously that it has led to an increasing pressure on enterprises and therefore also on their insurers. It is particularly against the increasing use of liability law that insurers have been looking for remedies. In some legal systems, such as that in the US, scholars like Priest have argued that it has been the expansion of liability law, which has led to an insurance crisis.17 We will therefore focus on these developments in liability law to see whether they have had a negative impact on the insurability of risks. In the next section (Ch. 3) we will then address the insurability of systemic risks more broadly, and then come back to the developments in liability, considering in what way they negatively affect insurability (Ch. 4)...

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