Guest column: Don’t listen to the lawyers, take tough action to curb car insurance costs
Average rates for personal auto insurance have risen 56% over the past five years in Louisiana, compared to 23% nationwide. The situation is so severe that even President Donald Trump opined on the subject on Twitter. The lack of competition and high loss ratios in Louisiana’s auto insurance market is also part of why the state has scored an overall grade of “F” for two years in a row in the R Street Institute’s annual Insurance Regulation Report Card.
When lawmakers convene next March for the 2020 legislative session, we hope they will succeed where past efforts to address the auto insurance crisis have failed. Most recently, House Bill 372 by Rep. Kirk Talbot, R-River Ridge, sought to create a more equitable tort system and to reduce insurance costs, but it became bogged down in the Senate, where it ultimately died in the face of opposition from Louisiana’s powerful trial bar.
The trial bar instead proposes that the state enact more stringent rate regulation, like that seen in California, and that insurers be barred from considering factors like a policyholder’s credit history. The former might be a reasonable response to obscene insurance company profits, but the numbers show that is not the case. According to S&P Global data, over the past five years, 74 cents of every $1 Louisianans paid in auto insurance premiums went toward claims, the third-highest average loss ratio in the country, behind only Michigan and Colorado.
Meanwhile, restricting what variables insurers can use to write business will only chase more of them out of the state. Operators of commercial auto fleets, where credit is not relevant, will testify that the problem is hitting them just as hard. According to S&P Global data, Louisiana commercial auto insurers have paid out 87 cents in claims for every $1 of premium collected, second only to Nevada’s 90 cents.
Insurance company greed isn’t to blame for the crisis. Rather, it stems from what is happening on Louisiana’s roads and in its courtrooms. Louisiana has the country’s highest claims-to-litigation ratio and Louisianans are twice as likely to claim that they suffered bodily injury from an automobile accident as other Americans. According to the Insurance Research Council, Louisiana had 1.75 bodily injury claims per 100 insured vehicles in 2017, compared to the national average of 0.9.
What’s more, Louisianans are 60% more likely than other Americans to file a lawsuit against insurers, rather than continuing to work with them in good faith. Too many view wrecks as a possible windfall. Meanwhile, some nefarious characters have been attempting to stage wrecks and use the legal system to defraud insurers. It has gotten so out of hand that the federal government is investigating this trend.
To address these issues, legislators should look to some of the recommendations offered by the High Auto Rates Task Force that Donelon convened in 2018. The task force estimated the cost of bodily injury coverage could be reduced by 5% if evidence of seat belt use were allowed at trial and by 2% if recoveries by uninsured drivers were restricted. Other recommendations included revising the collateral source rule, moving more cases to jury trials and limiting damages on commercial auto insurance claims to $500,000.
We also recommend more stringent penalties for distracted driving and moving to make the state’s rate-filing process less onerous, not more. The best guarantee of low rates is more competition in the market.
Finding a solution to the Louisiana auto insurance crisis won’t be easy and it will require compromise. But the Legislature, the insurance commissioner and the governor have to know the voters will be watching closely. They expect action.
Image credit: Andrey_Popov