Insurance bills may balloon thanks to bureaucratic busy-bodies

 Lawmakers recently celebrated the passage of Gov. Brian Kemp’s top priority: tort reform. Its ratification was a big deal, especially considering that lawsuit abuse has for years ravaged insurers and consumers.

Kemp’s legislation was designed, in part, to alleviate undue financial pressure on insurers and insureds. This is important, too. Georgians need insurance of many forms. So, you’d think that officials would be on the same page on insurance regulation. They’re not; not even close.

In 2022, Allstate Insurance raised its rates by 25 percent, which angered Insurance and Safety Fire Commissioner John King. He lambasted the insurer for its “inexcusable actions” and called on the Legislature to give him more power to keep insurance rates artificially low.

While I don’t know Allstate’s business model, property and casualty insurance rates as a whole fluctuate based on a host of external variables, and premiums are largely based on the risk that insureds will file a claim and the likely payout of such claims. It’s a complex business built on predicting risk and insurers regularly lose money doing it. In 2024, for instance, Georgia’s homeowners insurers paid out about $1.42 for every $1 earned in premiums.

When insurers in 2022 wanted to adjust their rates, they needed to file it with the insurance commissioner and use it, in a system appropriately called “file-and-use.” It was an efficient manner of regulating insurers. Yet it seemed at the time that King wanted to cast “file-and-use” aside and give himself the authority to determine what rates are fair—as if bureaucrats know how to run an insurance company better than insurers.

The Legislature did not grant him these vast powers, but they did institute what’s known as a deemer period of 60-days. This gives King more time to review insurance rate proposals before they can go into effect 60-days later. While not as burdensome as what King appeared to want, it changed how the insurance industry operates and not necessarily for the better. This slows down the process and may create some uncertainty—uncertainty that continues in other ways, too.

When the General Assembly debated Kemp’s tort-reform package earlier this year, the minority party was quick to attack insurers, rather than lawsuit abuse, and even introduced amendments that would have harmed the industry and consumers. “My amendment does one simple thing,” Sen. Nabilah Islam Parkes, D-Duluth, said in a debate. “It ensures that insurance premiums will not rise any faster than the rate of inflation.” That would have made a terrible law.

As I wrote in these pages previously, “Inflation affects insurance rates to a degree, but matters entirely unrelated to it greatly influence insurance costs: namely risk […] A law that binds insurers hands so that actuaries and policy-writers cannot take into account issues that really matter imperils insurers’ well-being.” Price controls are simply bad Soviet-styled policy. Such a law could have resulted in insurers fleeing Georgia—leaving Georgians with fewer options—but thankfully the measure never proceeded.

Not long after tort reform passed the Legislature, officials began pondering more insurance reforms. Under the current model, the Insurance Department does more than just consider insurers’ rate change proposals. It also investigates and even fines insurers who are guilty of serious infractions.

Under Georgia law, the insurance commissioner can only fine them $5,000 for each offense at most. King thinks that is ridiculous. According to WSB-TV, “King said his office receives between 10,000 and 11,000 complaints each year. Now he is asking the General Assembly to give him the power to issue tougher fines to insurance companies that do not cooperate.”

Misbehaving insurers no doubt need to be held accountable, but handing a bureaucrat more power to levy increasingly large fines—perhaps arbitrarily—isn’t going to help our beset insurance market or ratepayers. If the commissioner levied the $5,000 fine for each of the 11,000 complaints, which he surely didn’t do since many were presumably baseless, that would have resulted in $55 million in fines.

That’s an astronomical number that could have crippled insurers, and they likely would have passed the cost onto ratepayers. Increasing the fine would simply threaten to apply more financial pressure on insurers that are facing dire financial straits, which might make some reconsider operating in the Peach State. Again, misbehaving insurers need to be punished accordingly, but the punishment needs to be appropriate and not constrain the market so that consumers no longer have options.

Georgians ought to be pleased with tort reform’s enactment and how it may reflect in their insurance premiums, but there is still room for improvement. My employer ranks states by how well they regulate insurance markets, and Georgia came in at an underwhelming 22 out of 50. With policymakers seemingly in disagreement over insurance regulation and insurers continuing to fall in their crosshairs, expect more uncertainty.