In Europe, liability coverage is insurers' biggest challenge.

Scant capacity, inadequate pricing and tort issues are hampering progress in European liability lines of insurance and reinsurance, according to experts from some large markets in the region.

The area where insurers are suffering most in the United Kingdom is employers liability--roughly comparable to workers' compensation in the United States--said Patrick Snowball, managing director of Aviva plc's Norwich Union Insurance. "Rates have gone tip about 30%, and they need to keep going up," he said.

He suggested the U.K. government should take a look at the views of the Irish and Canadian governments, which make sure that the individual seeking compensation gets compensated, and not the lawyers. "In the U.K., the lawyers now get 34% of the award," he said.

In U.K. general liability; capacity has been reduced and rates are rising about 30% a year, said Snowball. But the insurance industry made the mistake of moving too abruptly to raise its rates, he added. "Where we were at fault in terms of public relations, is that we moved so quickly to raise rates, without giving buyers enough warning," he said.

Stefan Richter. managing director of nonlife insurance for the German insurance association GDV, said the overall combined ratio fur liability in Germany is around 100, but the industry is bracing for the effects of a law passed in 2002 that allows for damage awards for pain and suffering. "It is still unclear how that will affect liability underwriting," he said.

General third-party liability is the "black part" of the nonlife market in Italy, said Sergin Desantis of Italy's insurance association, ANIA. The combined ratio--losses and expenses as a percentage of premiums--was 132.7 for the line in 2002, an improvement from 145 in 1998. Premiums rose from 1.8 billion euro (about $2 billion) to 2.5 billion euro in 2002, but Desantis said there aren't nearly enough willing participants in the market.

Jean-Marc Lamere, special adviser to the chairman of the French Insurance Association--FFSA--said third-party liability is "an ongoing success" in France, though a drop in investment income led to an underwriting loss in 2002. Underwriting results averaged about 240 minion euro from 1999 to 2001 but fell sharply to a loss of about 40 million euro in 2002, he said.

"Third-party liability is certainly a different case from all the others in European markets," said Lamere. "In every country, there is an increasing lack of appetite among insurers to go into third-party liability because of changes in attitudes of the courts, but also tot financial reasons," he said.

The industry needs plenty of capital ill third-party liability. "Of course, you have to ask the consumer to pay for that capital," said Lamere. "So far, it hats been very difficult to get the pricing for that volatility."

Lamere said the industry also needs specialists to handle some of the more specialized segments, such as environmental liability and medical liability. "There will likely be smaller, more specialized insurers in the future to write these lines," he said.

In Europe overall, there's been a crisis over the past three years concerning the availability of liability insurance because of the open-ended nature of claims, said Lamere.

"Insurers have lost a lot of money in liability lines and aren't even sure how much money they may have lost," he said. "We hope that in the next year or two it will stabilize through higher rates."

Richter said that another "political question" in Germany is whether to institute a mandatory catastrophe insurance program. Floods in Germany in 2002 cost 9.1 billion euro in total economic losses. "Governments are going to have to find an answer as to bow to cover for natural catastrophes on such a large scale," he said. "Only about 4% of private property owners in Germany are willing to pay for coverage for such disasters."