< Return To Hearing
Dr. Robert Hartwig
June 4, 2003
Testimony as delivered
United States Senate Committee on the Judiciary
Solving the Asbestos Crisis: S.1125
JUNE 4, 2003
My name is Robert Hartwig and I am Chief Economist for the Insurance Information Institute, a property/casualty insurance trade association. I have been asked to testify before the Committee regarding several of the most important economic considerations surrounding the current asbestos debate. As an economist, I am particularly interested in eliminating the extraordinary inefficiencies associated with asbestos litigation, as well as the severe economic and financial dislocations associated with those inefficiencies, within a framework that is fair and equitable for all parties involved.
The macroeconomic implications associated with the current out-of-control asbestos litigation system are not in dispute:
TOWARD AN EFFICIENT SOLUTION TO THE ASBESTOS CRISIS
If nothing is done to resolve what has been described as the ¡§elephantine mass¡¨ of asbestos litigation, scores, if not hundreds, of additional businesses will be forced into bankruptcy and tens of thousands of workers will find themselves unemployed. Retirees and workers who have spent decades saving for retirement will continue to see their life¡¦s savings vanish.
The inefficiencies associated with asbestos litigation stem largely from abuse, which has led to a rapid upward spiral in tort costs. Legislation now before the committee will address these abusive practices.
Under the present tort system, hundreds of thousands of victims¡Xup to 90% of whom are unimpaired by any asbestos related illness¡Xare able to move from state to state setting their sights on the most sympathetic jurisdictions and judges. As state and federal policymakers have determined previously, there are some public policy crises so profound, or certainly so vital, as to require quantum legislative actions: these include the September 11 Victims Compensation Fund, funds for Black Lung, vaccine compensation and state workers compensation funds.
The current trust fund proposal would be more efficient¡Xand rational than the current system for the following reasons:
1. Only individuals who are impaired by asbestos exposure would be entitled to compensation under the fund;
CONSTRUCTING A PRIVATELY-FUNDED FACILITY THAT PROVIDES CERTAINTY, FINALITY AND EQUITY
Major insurers and manufacturers have been working with some of the best financial, actuarial and legal resources available to construct a privately-funded facility that will bring certainty, finality and equity to the country¡¦s asbestos problem. Based on these analyses, insurers believe that $45 billion dollars contributed from both the insurance and policyholder sectors, combined with contributions from manufacturers and others will fund a facility that approaches $100 billion and is sufficient to compensate present and future claimants based upon need, not when or where they file suit. Insurers are willing to perfect such a mechanism so that annual cash flows run unimpeded and that solvency risk is extinguished.
The proposed insurer contribution of $45 billion is large and constitutes, by far, the largest payout in the history of the property/casualty insurance industry and will inflict true financial pain on the two dozen or so companies who will pay the bulk of this amount. Forty-five billion dollars is approximately 50% more than insurers hold in reserve for asbestos claims today and is equal to about one-third of all the capital held by commercial insurance companies today. That¡¦s significant because there is no excess capital in the industry today -- it is all committed to paying for workers hurt on the job, for business owners recovering from national disasters or terrorist attacks.
IMPLICATIONS OF INACTION
America¡¦s clear national interest lies in making sure asbestos funds are available for those who become sick and lifting an ominous cloud of litigation from our troubled economy.
Thank you for the opportunity to appear at today¡¦s hearing. I would be happy to answer any questions you may have.
Prof. Eric D. Green
The Honorable Patty Murray
The Honorable Chuck Hagel
The Honorable Max Baucus
Dr. Robert Hartwig
Dr. James D. Crapo
Ms. Jennifer L. Biggs
Dr. John E. Parker
Dr. Fredrick C. Dunbar
Prof. Laurence Tribe
Dr. Mark A. Peterson
Dr. Laura Stewart Welch
The Honorable Orrin Hatch
The Honorable Patrick Leahy