Insurance Crisis, Legal Environment, and the Sustainability of Professional Liability Insurance Market in the Construction Industry: Based on the US Market

Abstract EN

PLI (professional liability insurance) is currently the main method used to control construction practice risk and is an important economic measure of construction industry governance.

Few literatures have analyzed the sustainability of the liability insurance market.

In particular, the research on the sustainability of the PLI market in the construction industry is still blank.

The sustainability of the market can be identified with the equilibrium of the system over a certain period of time.

From the perspective of cooperation benefits, this paper adopts evolutionary game theory (EGT) to analyze the evolutionary trends of stakeholders’ behaviors and their evolutionarily stable strategy (ESS) in the PLI market of the construction industry.

A case study from the history of the US PLI market evolution over nearly 100 years is taken to illustrate the stakeholder game and interpret the market evolution path, and several typical stages of the development of the US PLI market are explored.

Some factors that can cause a shift in equilibrium are found.

The results show that the change in the legal environment will directly affect the payoffs of the stakeholders, cause market imbalance, and trigger crisis.

These findings will help out the government to regulate the market in a timely manner by improving external factors, such as by building a sound credit system and ensuring the stability of the legal system.

In an equilibrium state, competitive markets can eliminate individuals with high accident rates and companies with high operating costs.

Moreover, these findings will also set a base for future researches to investigate the role of insurance market and legal environment in depth while providing the intensive critical factors towards sustainable construction industry.