Why are Louisiana’s auto insurance rates so darn high?
As a Louisiana resident, I paraphrase Jimmy McMillan when I say “car insurance in Louisiana is too damn high.” While Louisiana only has the seventh most expensive car insurance in this year’s Insure.com survey of the states, the state is a frequent contender for the top spot. In the Southeast, only Georgia has higher average car insurance rates. But given that Louisiana is the second poorest state in the country, car insurance costs probably have more of an impact on Louisiana drivers than Georgia drivers.
Car insurance rates in Louisiana are so expensive compared to the rest of the country partly because of policy decisions that have been made by Louisiana lawmakers. Thus, just as Louisiana policy-makers have made numerous terrible decisions that have contributed to these high rates, they also can take the necessary steps to fix the situation and truly lower rates for all Louisianans.
The legal environment
It’s no secret that Louisiana — and, in particular, New Orleans — is a haven for trial lawyers. Louisiana is frequently named a “judicial hellhole” by the American Tort Reform Foundation. It should be no surprise that Louisiana’s overly litigious culture would be a contributing factor to the high cost of car insurance. Also, Louisianians file more lawsuits claiming personal injury than in most other states. Louisiana, especially the metro New Orleans area (which is home of a quarter of Louisiana’s population), is replete with trial lawyers seeking cases on contingency basis. Their ads are splattered all over the place. This is a possible explanation for why rates in metro New Orleans are so high and skew the rest of the state higher.
Louisiana also has a relatively high jury threshold. In Louisiana, juries will not hear a civil claim unless the damages are worth at least $50,000. This high threshold is 28 times the national average among the 14 states that have a jury threshold. Instead of juries hearing and deciding these cases, elected judges make the decision. It’s believed that judges will prefer to side with their constituents, who vote for them, and the personal injury attorneys, who contribute to their campaigns, over the (usually) out-of-state insurance companies. However, the Louisiana state House rejected a bill in April that would have lowered the jury trial threshold when trial lawyers and Democrats came out against it.
Louisiana also has a Direct Action Statute which, in certain cases, allows motorists to bring lawsuits directly against auto insurance companies. It’s been alleged that this law inspires many lawyers to create a claim from nothing so they can get paid.
Poor road conditions
If you have ever driven in Louisiana, you know the state’s roads are among the worst in the United States. According to the Reason Foundation, Louisiana’s roads ranked 40th in the country. The major contributing factors are the poor condition of the pavement and the especially poor condition of urban interstates.
Like most states, Louisiana funds highway construction and maintenance primarily through gasoline taxes, in this case a 20 cent per gallon sales tax. In 2013, the gasoline tax generated $587.3 million, but Louisiana only spent $27 million of that on road and highway maintenance. The estimated cost to properly maintain Louisiana’s state roads and highways is $70 million.
The shortfall can be partly explained by the fact that one-quarter (or 5 cents) of the gas tax revenue goes to pay off bonds resulting from the TIMED program, which has gone to build some bridges and widen some state highways from two lanes to four lanes, at a cost of $146 million Back when it was approved by the people of Louisiana in 1990, TIMED was projected to cost just one-fifth of the gas tax revenue, or 4 cents per gallon.
The Louisiana State Police also receive $60 million from the gasoline tax to fund their operations. Another $46 million is given to parish governments to fund their road needs. The rest is used to fund ports, airports and more local government needs.
Recommendations
- Louisiana needs to pass a law lowering the jury threshold. Quite simply, more cases involving auto accidents need to be heard by impartial juries, not by Louisiana’s elected judges. This is one way to deter lawyers from filing questionable cases against insurance companies and treating their clients as a piggy bank.
- Louisiana needs to enact “loser pays” tort reform. Louisiana needs to follow the lead of Texas and enact “loser pays” tort reform which requires the loser of a lawsuit to pay the costs of the winner. This can prove as yet another deterrent to frivolous lawsuits and make a dent in Louisiana’s overly litigious culture.
- Louisiana needs to make highway maintenance the top priority of highway funding. Out of an estimated available $441 million not dedicated to the TIMED projects, the fact that Louisiana only spends $27 million on highway maintenance is a disgrace. What Louisiana needs to do is end the funding of purely local and parish road projects out of state revenue and put the responsibility for funding those projects where it belongs, on the local and parish governments themselves. Also, the state of Louisiana should fund the Louisiana State Police out of general revenue instead of dedicated gas tax revenue.
Once the State of Louisiana begins making highway maintenance a priority and implementing important tort reforms, in the long term the state of Louisiana should begin to experiencing a decrease in auto insurance rates. This should help lead to a much-needed improvement in the cost of living in the Bayou State so that Louisiana stays known mostly for its unique culture and hospitality, not its high car insurance rates.
