THE SENATE Select Committee on Small Business has scheduled hearings early next month on the latest in the series of insurance "crisis." This one involves product liability insurance, which manufacturers and merchants buy to protect themselves from damage claims made by those who use their products. The stories these businessmen will tell will sound much like those automobile owners and doctors told in the not so distant past - growing numbers of damage suits, much larger jury verdicts and sharply increasing insurance rates. But there is a difference this time: Some consumer groups contend all those developement are justified.
No one will delay that there is a problem. Some businesses, particularly small ones, are on the verge of folding because of insurance rates that have increased 1,000 per cent or more in the last five years. Some products are being taken off the market. Other products are more expensive to consumers because insurance costs are passed through in price increases, although the insurance companies say this accounts for less than one per cent of total sales. Wether the problem is worthy of federal intervention depends on your perspective. For many small businessmen, it certainly is. But many consumer advocates regard all this as being largely the result of an increase in the number of unsafe products on the market.
The trouble with sorting out the pros and cons of the situation is that no one has the kind of data on product liability insurance that existed for automobile and marpractice insurance when they were up for review. those kinds of insurance had been studied for years, by both insurance companies and academics. But until about five years ago, product liability attracted little attention. It was a legal backwater and presented no particular problem to businessmen or insurance companies. Then public awareness of the possibility of collecting damages from manufactures for fauty products - coupled, we suspect, with an awareness among lawyers of the fees to be collected by opening a new field of litigation ' created the explosion of claims, lawsuits and costs.
The immediate reason for hearings in the Senate is a bill proposed by Sens. John C. Culver (D-lowa) and Gaylord Nelson (D-Wis.) to create a federal reinsurance program to help insurance companies cover the risks of eligible small businesses. At best - if the small businessmen are right and there is a crisis - this can only be a band-aid. At worst - if they are wrong and the consumer advocates are right - it would put the government in the position of underwriting the carelessness and mistakes of those it is trying to help. Social to the action it should recommend.
In the long run, it seems to us, this issue is simply another signal that something drastic must be done about the way the legal system handles damage claims, be they derived from product liabilty, malpractice or automobile accidents. One set of data suggests that only 38 cents out of each dollar paid in product liabilty insurance ever reaches those who have been injured; the rest is eaten up in administrative and legal costs. The number is not unlike that involved in the other insurace fields that have become sources of controversy. That kind of discrepancy is simply too great to be allowed to continue.