Watch the law suits play the blame game

THERE are about one million lawyers in America. That is one in every 135 members of the working population.

This speaks volumes about the blame-and-claim culture that has dominated the US for so long. Alarmingly, the litigation disease is now firmly ensconced here.

We do, however, appear to be waking up to this pernicious trend. Last week, the Government's regulation watchdog said it would look into the costs to industry as a result of the growing number of claimants seeking compensation in one form or another.

I am not saying that individuals who suffer genuine harm, or are mis-sold products, should not be given full and generous redress. Financial Mail has campaigned vigorously for reparation for those who have been sold duff endowments and pensions.

Smokers who took up the killer habit while tobacco firms were still concealing the deadly addictive properties of their wares deserve compensation, as do the thousands of people inflicted with terminal lung illnesses from products such as asbestos. It is also right that passengers injured or killed in accidents where negligence can be proved should have their cases taken to the very highest level.

But just as there has always been a tendency for the victims of burglary to overstate the value of the odd item when claiming insurance, backaches are now leading to industrial injury claims and obesity is no longer a matter for the gym but a lawsuit against McDonald's. Similarly, a mistaken gamble on the latest go-go internet stock now means a damages claim against a stockbroker.

With lawyers raking in about 40% of every claim paid out, the legal profession has little interest in discouraging litigants, including those with only the flimsiest of claims.

It is easy to regard business as fair game. Too many companies sell shoddy goods and services, treat their staff badly and have a flagrant disregard for the notion of dealing fairly with customers.

But the cost of randomly targeting business for the ills of society is huge and it has an impact on us all. Thousands of companies risk being driven to the wall because they simply cannot afford to purchase liability insurance.

Companies that can are paying massive premiums - a cost that must eventually be reflected in the prices they charge. Many companies find it cheaper to settle dubious claims out of court rather than incur the cost of lawyers. Consequently, it is feared that only the brave will take on a non-executive directorship in case they are held responsible for corporate failures.

In the long-term, there is a risk that business will become too cautious if it is made to constantly look over its shoulder to the law courts. The Government's Better Regulation Task Force is unlikely to devise a one-stop solution to this impending crisis.

And while it is clear that this thorny issue does not lend itself to any easy answers, this does not mean we should continue to keep our heads in the sand.

Buffetted
WARREN Buffett, regarded by many as the world's most successful investor, is a genius. He also runs one of the biggest and most highly regarded insurance companies.

It came as more than a small surprise, then, when one of the most respected executives in the Lloyd's of London insurance market told me that Buffett's influence on the global underwriting business had been almost totally malign.

'Listen,' he said. 'For 20 years, Warren Buffett has pointed out in his annual report that as long as the underwriting loss from his insurance company is less than the cost of borrowing money, it is a cheap way for his company to raise money that he can invest - and he has done so brilliantly.'

He went on: 'The problem is that others think they can emulate the great Buffett and the result for many has been disastrous, as underwriting can be highly toxic. Very few insurers keep their combined loss ratios below the cost of borrowing money and their investing has not been too clever either.'

Behind his remarks is the fear that with general insurance rates soaring to levels not seen for a generation, new players will flood the market with capacity. As a result, premiums will begin to tumble again before the losses of catastrophes such as 9.11 have been fully recouped.

It must be said that Buffett is a very powerful siren. But with interest rates at their current derisory levels and the equity markets still offering only bleak returns, even the people in the insurance industry - not widely renowned for their intellect or judgment - look unlikely to plunge back in for some time to come.