We're living in a climate of legal fear

Recently Lloyd's chairman Lord Levene gave the grave warning that Britain was falling into the same abyss of blame culture as litigation-mad America.

He gave as an example the cancellation of an historic cheese-rolling event in Gloucestershire because of safety fears. Now many insurance professionals are becoming cheesed off at this climate of legal fear.

How does a head teacher insure himself when one of his pupils sues him after being told to pick up a fish he had thrown down on the playground? The fact that the police were prepared to prosecute the head teacher concerned speaks volumes for how defenceless decent citizens have become.

This climate, Lord Levene pointed out, saps the will of the risk-taker. Yet Lloyd's has been a market of entrepreneurial underwriting for more than three centuries, always prepared to write the risks the rest of the market avoided.

Little wonder that some 70 major companies have just announced plans to join up to provide their own directors' and officers' cover. The legal risks now faced by company directors and senior managers are enormous, and the captive insurance market looks a more cost-effective route.

Part of the problem is that premiums for many classes of insurance were well below par following the mad chase for market share.

As a result, recent hikes, big as they are, have been largely a rebalancing act. But tell that to company shareholders.

One of the most lucrative areas for the lawyers is employers' liability (EL). There has been frustration at the slow progress of talks with the government on EL, but it is better that ministers get it right than make a hasty, botched response to industry fears. Act in haste - repent at leisure fits the bill here.

And it is only the government and parliament that can stop the rot. But the will is not there among the politicians to kill off this hydra-headed beast. Britain has become an over-regulated nanny state, in which every infringement of the 'rights' of the individual - real or conceived - takes precedence over responsibilities.

The only certain continuing growth areas are those of the uninsurable company and the equally uninsurable individual.

Lord Levene said that reform of the US tort system was imperative - the compensation culture had to be reversed. He is right. However, Britain is never far behind the US, and in a global market what happens in the US will inevitably spill over elsewhere.

This fear of tort runs contrary to the entire spirit of the insurance industry. Risk-taking is at the centre of all insurance, but when the odds begin to be stacked so strongly against the underwriter, the close relationship between underwriter, broker and policyholder can come apart at the seams.