Category Archives: Auto Insurance

Auto Insurance, Insurers and the Economy, Legal Environment, Market Conditions

Even With Recent Rises, Auto Insurance Is More Affordable Than During Most of Century to Date

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You read that right. As a percentage of median household income, personal auto insurance premiums nationally were more affordable in 2022 (the most recent data available) than they have been since the beginning of this century.

And even the premium increases of the past two years are only expected to bring affordability back into the 2000 range, according to the Insurance Research Council (IRC).

A new IRC report – Auto Insurance Affordability: Countrywide Trends and State Comparisons – looks at the average auto insurance expenditure as a percent of median income. The measure ranges from a low of 0.93 percent in North Dakota (the most affordable state for auto insurance) to a high of 2.67 percent in Louisiana (the least affordable).

The pain is real

This is not to downplay the pain being experienced by consumers – particularly those in areas where premium rates have been rising while household income has been flat to lower.  It’s just to provide perspective as to the diverse factors that come into play when discussing insurance affordability.

Between 2000 and 2022, median household income grew somewhat faster than auto insurance expenditures, causing the affordability index to decline from 1.64 percent in 2000 to 1.51 percent in 2022. In other words, auto insurance was somewhat more affordable in 2022 than in 2000.

“With the recent increases in insurance costs, affordability is projected to deteriorate in 2023 and 2024,” said Dale Porfilio, FCAS, MAAA, president of the IRC and chief insurance officer at Triple-I. “The affordability index is projected to increase to approximately 1.6 percent in 2023 and 1.7 percent in 2024, a significant increase from the low in 2021 but still below the peak of 1.9 percent in 2003.”

In other words, we’ve been here before; and, if risks and costs can be contained, so can premium growth in the long term.

Cost factors vary by state

Auto insurance affordability is largely determined by the key underlying cost drivers in each state. They include:

  • Accident frequency
  • Repair costs
  • Claim severity
  • Tendency to file injury claims
  • Injury claim severity
  • Expense index
  • Uninsured and underinsured motorists
  • Claim litigation.

These factors vary widely by state, and the IRC report looks at the profiles of each state to arrive at its affordability index.

Reducing risk and costs is key

Porfilio noted that “while state-level data cannot directly address affordability issues among traditionally underserved populations, collaborative efforts to reduce these key cost drivers can improve affordability for all consumers.”

Continued replacement-cost inflation is likely to maintain upward pressure on premium rates. Tariffs could exacerbate that trend, as well as hurting household income in areas dependent on industries likely to be affected by them.

At the same time, some states are working hard to ameliorate other factors hurting affordability.  Florida, for example, was the second least affordable state for auto insurance in 2022; however, the state has made recent progress to reduce legal system abuse, a major contributor to claims costs in the Sunshine State. In 2022 and 2023, Florida passed several key reforms that have led to significant decreases in lawsuits. As a result, insurers have been writing more business in the state after a multi-year exodus. This increased competition puts downward pressure on rates, which should be reflected in the IRC’s next affordability study.

Learn More:

IRC Report: Personal Auto Insurance State Regulation Systems

IRC Report: U.S. Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs

Florida Reforms Bear Fruit as Premium Rates Stabilize 

What Florida’s Misguided Investigation Means for Georgia Tort Reform

Florida Bills Would Reverse Progress on Costly Legal System Abuse

Inflation Continues to Drive Up Consumers’ Insurance Costs

Improved Commercial Auto Underwriting Profitability Expected After Years of Struggle

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

Georgia Is Among the Least Affordable States for Auto Insurance

Report: No-Fault Reforms Improved Michigan’s Personal Auto Insurance Affordability

Auto Insurers’ Performance Improves, But Don’t Expect Rates to Flatten Soon

Auto Insurance, Business Risk, Homeowners Insurance, Insurers and the Economy

How Tariffs Affect
P&C Insurance Prospects

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Tariffs and threats of tariffs have been roiling financial markets since January. Property and casualty insurers are no less concerned, as the cost of repairing and replacing damaged property is a driver of claim costs and, ultimately, policyholder premiums.

Triple-I Chief Economist and Data Scientist Dr. Michel Léonard recently sat down to explain the implications of tariffs and trade barriers for insurers and what economic considerations concern industry decisionmakers.

While property and casualty insurers write many kinds of coverage, the lines Léonard primarily discussed were homeowners and personal and commercial auto – “lines that have a physical emphasis on repair, rebuild, and replace.”

Lumber from Canada; cars, trucks, and parts from Canada and Mexico; and garments, furnishings, and technology from Asia all come into play when considering the prospective impacts of tariffs on replacement costs, Léonard said.

“When we’re focusing specifically on China,” he said, “we’re looking primarily at farm equipment and alternative-energy components.”

Uncertainty around tariffs – particularly in recent weeks, as tariffs on Mexico and Canada have been imposed and “paused” – makes analysis even more difficult.

“Much depends on how much clarity there is, how much communication from the policymakers, from the administration and from the legislature,” Léonard said. It’s also important to remember that impacts can last well beyond their implementation and withdrawal.

During the first Trump Administration, tariffs on soft commodities, beef, grain, and so forth had impacts for several years afterwards.

“Those tariffs were fairly short lived,” Léonard said, “but for two to three years afterward farmers were uncomfortable investing in equipment at the same pace, and that reduced farmowners’ insurance growth.”

Regardless of how the current discussions around tariffs play out, the Trump Administration has signaled a decided shift in policy toward greater protectionism. As a result, Léonard said, “We should expect a repositioning in our understanding of our replacement costs and underlying growth forecast for the next 12 months, at a minimum.”

He projects a period of “most likely 24 to 36 months” in which growth will be slower and inflation – including replacement costs for the P&C industry – will be higher.

Learn More:

Tariffs and Insurance – full video (Members Only)

Insurance Economic Outlook (Members Only)

Auto Insurance, Coastal Property, Homeowners Insurance, Insurers and the Economy, Legal Environment

Florida Reforms
Bear Fruit as Premium Rates Stabilize 

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Florida’s legislative reforms to address claim fraud and legal system abuse are stabilizing the state’s property/casualty insurance market, according to the latest Triple-I Issues Brief.  

Claims-related litigation has significantly declined over the past two years, and premium averages are nearly flat, with several insurers requesting rate decreases from the state’s insurance regulator.  In addition, the brief says, the number of insurers writing business in the state has rebounded after a multi-year exodus. This competition from the private market has allowed policyholders to leave Citizens Property Insurance Corp. – the state-run insurer of last resort – to obtain coverage at previously unavailable rates from a much healthier private market. 

According to the state’s Office of Insurance Regulation (OIR), Florida in 2022 accounted for nearly 71 percent of the nation’s homeowners claim-related litigation, despite representing only 15 percent of homeowners insurance claims. The same year – before Hurricane Ian made landfall in Florida – six insurers in the state declared insolvency, primarily due to economic pressures from legal system abuse. Based on insured losses, Ian became the second-most costly U.S. hurricane on record, due in large part to extraordinary litigation costs for disputed claims. 

The Legislature responded to the growing crisis by passing several pieces of insurance reform that, among other things, eliminated one-way attorney fees and assignment of benefits (AOB) for property insurance claims and prohibited misleading legal service ads and the misuse of consumer health information for legal services. 

Premium rate growth slowing 

The impact of the 2022 and 2023 reforms can be seen in premium rate changes, particularly with respect to homeowners insurance. Homeowners rates in Florida grew at a much slower rate in 2024, even as rate growth remained strong nationally. Growth in personal auto insurance premium rates in Florida has slowed since the repeal of AOB and one-way attorney fees, but the trend also is consistent with nationwide experience. 

“There are a lot of factors involved in insurance rates, and Florida’s property and auto markets are challenging,” Florida Governor Ron DeSantis said in February, “but…data suggests that, in 2024, Florida had the lowest average homeowners’ premium increases in the nation, and the overall market has stabilized, with 11 new companies having entered the market over the past two years.” 

Among the top 10 national insurers writing homeowners insurance in Florida, 60 percent have expanded their business over the past year, and 40 percent of all insurers operating in the state filed for rate decreases in 2024, according to Florida Insurance Commissioner Michael Yaworksy. 

The cost of reinsurance also continues to decrease for Florida carriers. 

“In 2024, most companies paid less for reinsurance than they did in 2023,” according to the OIR website. “The average risk-adjusted cost for 2024 was -0.7 percent, a large reduction from last year’s change of 27 percent increase from the prior year.” 

Reinsurance costs are factored into premium rates, so this is another reason Florida now has the lowest average rate filings in the United States in 2024, according to S&P Global Marketplace. 

Learn More: 

Florida’s Progress in Legal Reform: A Model for 2025 

How Georgia Might Learn From Florida Reforms 

Resilience Investments Paid Off in Florida During Hurricane Milton 

Florida Homeowners Premium Growth Slows as Reforms Take Hold, Inflation Cools 

Auto Insurance, Insurance Industry, Risk Management

IRC report reveals that one in three drivers were either uninsured or underinsured in 2023. 

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In 2023, despite nearly universal legal requirements to have auto insurance, more than one in seven drivers (15.4 percent) nationally were uninsured, and more than one in six drivers (18.0 percent) were underinsured, according to the new report, Uninsured and Underinsured Motorists: 2017–2023, by the Insurance Research Council (IRC), affiliated with The Institutes. Across the fifty states and the District of Columbia, one in three drivers (33.4 percent) were either uninsured or underinsured in 2023, a 10 percentage point increase in the combined rate since 2017.  

Using data submitted by 17 insurers — representing approximately 55 percent of the private passenger auto insurance market countrywide — this latest report estimated the prevalence of uninsured (UM) and underinsured (UIM) by comparing the frequency of UM claims and UIM claims, respectively, to the frequency of bodily injury (BI) claims. Findings included an analysis of trends and contributing factors to variations in UM and UIM rates across states. 

The IRC analyzed UM, UIM, and BI liability exposure and claim count data from participating companies for 2017 through 2023. Because of the disruption of the pandemic shutdowns, the changes over time were split into three periods (details outlined in the report).  

Key IRC findings include:  

  • UM rates varied substantially across the nation (50 states and the District of Columbia) 
  • Nearly every state saw a rise in the UM rate in 2020 with the onset of the pandemic, but the experience from 2020 to 2023 was mixed.  
  • Every state, except for New York and the District of Columbia, experienced a rise in UIM rate between 2017 and 2023.  
  • Many states with high UM rates often also have high UIM rates. However, some jurisdictions, such as Nevada and Louisiana, combine below-average UM rates with high UIM rates, while others, such as the District of Columbia, have high UM rates but low UIM rates.  
  • Several factors, including economic factors, insurance costs, and state insurance laws and regulations, are associated with variations in UM and UIM rates across states. 

After the initial shock of the pandemic, the UM rate increased steadily. 

Before the disruption of the COVID-19 pandemic, UM rates were falling in most states. From 2017 to 2019, only 11 jurisdictions saw an increase. UM claim frequency fell slightly in 2020 to 0.11 claims per 100 insured vehicles, but the decline was much smaller than the drop in BI claim frequency. UM claim frequency recovered quickly and, in the years since 2020, has grown faster than BI claim frequency (39 percent compared with 29 percent).   

As a result, the UM rate has increased steadily, reaching 15.4 percent in 2023. The range of the UM rates spanned from a low of 5.7 percent in Maine to a high of 28.2 percent in Mississippi. Outliers include eight states with UM rates above 20 percent and 11 states with rates lower than 10 percent.  

States with above-average BI claim frequency and UM claim frequency tended to have higher UM rates. Yet, some states with low UM claim frequency rates have a relatively high UM rate. In Michigan, for example, strict no-fault rules limit the number of BI claims, so the ratio of UM-to-BI claim frequencies is high. Lower UM rates tended to occur in states with higher income, lower unemployment rates, lower insurance expenditures, low minimum limits, and a lack of stacking provisions.  

UM rates were higher in states that don’t require UIM coverage. In 2023, the UM rate was 14.9 percent in states that do not require UIM insurance, compared with 11.6 percent in states that require it. Where UIM coverage isn’t required by law, UM rates were significantly higher in the years captured in this study, with the rate in 2023 at 18.9 percent in states that don’t require UIM insurance, compared with 13.3 percent in states that require it.   

Nearly one in five accidents with injuries involved losses more than the at-fault driver’s coverage limits. 

Over the study period, nearly every jurisdiction experienced an increase in its UIM rate. The only exceptions were a small decline (0.9%) in the District of Columbia and a 6.6 percent decline in New York. The largest increase occurred in Colorado, where the UIM rate rose 24.4 percentage points. Other states with above-average increases included Michigan, Kentucky, and Georgia.  

UIM claim frequency showed a small increase between 2017 and 2019 before dropping slightly in 2020. In the years since the onset of the pandemic, with the severity of auto injury claims on the rise, UIM claim frequency has increased markedly, reaching 0.17 claims per 100 insured vehicles in 2023. Since 2020, the growth in UIM claim frequency was double the growth in BI frequency. As a result, the UIM rate has increased significantly, rising to 18.0 percent in 2023.  

IRC analysis showed that characteristics associated with lower UIM rates included higher income, lower unemployment rates, lower insurance expenditures, high or medium minimum limits, lack of stacking provisions, and use of a limits trigger for UIM coverage rather than a damages trigger. States with high UM rates often also have high UIM rates. Florida, Colorado, and Michigan all rank relatively high for both measures, while Maine, Massachusetts, and Nebraska all rank relatively low.  

“The increase in UIM rates points to higher UIM premiums in the future, worsening affordability and potentially increasing the likelihood of more uninsured drivers. This demonstrates the complex interconnectedness of these two coverages as insurers protect consumers from insufficient coverage by at-fault drivers,” said Dale Porfilio, president of the IRC and chief insurance officer at the Insurance Information Institute (Triple-I). 

While state laws regarding mandatory requirements for uninsured and underinsured motorists vary, nearly all states have a legislation framework that requires all drivers to have some auto liability insurance to drive a motor vehicle. Drivers in most states are also required to purchase additional protection to provide coverage if the at-fault driver cannot afford to pay for the damage they caused. However, legislators in several states have enacted “no pay, no play” laws, which ban uninsured drivers from suing for noneconomic damages such as pain and suffering. A handful of states have programs to assist lower-income drivers, and drivers can check with their state’s insurance division to see if they are eligible.  

To learn more about UM/UIM trends, read the IRC report, Uninsured and Underinsured Motorists: 2017–2023, and check out the Triple-I Backgrounder on Compulsory Auto/Uninsured Motorists. 

Auto Insurance, Homeowners Insurance, Insurance Industry, Regulation, Risk Management

New Triple-I Issue Brief Puts the Spotlight on Georgia’s Insurance Affordability Crisis

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Insurance affordability in Georgia is dwindling as claim frequency and insurer costs soar, according to the latest issue brief from Insurance Information Institute (Triple-I), Trends and Insights: Georgia Insurance Affordability.  

Given the state’s below-average income vs. above-average insurance expenditures, Georgia ranks 42nd on the list of affordable states for homeowners insurance and 47th (plummeting from the 2006 high of 27th) for personal auto affordability, according to reports by the Insurance Research Council. This brief provides an overview of how several factors, including skyrocketing costs from litigation, pose risks to coverage affordability, availability, and other potential economic outcomes for Georgia residents. Tort reform is discussed as a legislative solution to the challenge of legal system abuse – excessive policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims. 

The Georgia insurance market grapples with multiple risk factors 

From 1980–2024, Georgia was impacted by 134 confirmed weather/climate disaster events in which losses exceeded $1 billion each. At least 38 of those events happened in the last five years, with 14 in 2023. Homeowners in Georgia’s most climate-risk-vulnerable counties, such as the coastal and most southern parts of the state, can face double-digit premium hikes or nonrenewals. Also, data indicates the rate of underinsured motorists in Georgia is twice as high as the national average, and the rate of uninsured motorists is 25 percent higher. Injury claim severity in the state is slightly higher than in the rest of the country.   

Data indicates that litigation costs have become a pervasive concern for risk management. 

Rising claim frequency and litigation costs put coverage affordability and availability at risk. For example, the IRC findings across personal auto lines show a dual trend in Georgia of increased claims and litigation. Property damage liability claims per 100 insured vehicles are 15 percent higher, and relative body injury claims frequency is 60 percent higher. According to IRC, the rate for private passenger litigation in Georgia is nearly three times that in the median state. 

The Georgia Office of Commissioner of Insurance and Safety Fire (“OCI”) reviewed all lines across personal and commercial auto, personal and commercial umbrella, and commercial general liability (homeowners liability was excluded). The five-year average count for liability claims increased 24.9 percent (2014 – 2018 at 583,756 vs. 2019-2023 at 729,191). A rising percentage of claims with payment are full-limit claims, and the OCI analysis indicates litigation is driving that increase. While costs rose for both litigated and non-litigated claims, the number of claims with legal involvement dominated paid indemnity for most lines of business, and litigated claims comprised a growing portion of the total paid indemnity. 

Attorneys appear to have revved up their mining for lawsuits in Georgia. Law firms spent $160 million on advertising in Georgia, according to preliminary data from the American Tort Reform Association (ATRA). Outdoor ads for lawsuits increased by 119 percent in GA during that time. It might not be a surprise then to see that the Georgia OCI report shows legal (attorney involved) claims dominated Personal Auto claims for Bodily Injury, comprising 62 percent of claims and 86 percent of total indemnity paid for closed claims in Accident Year 2023. A review of losses of $1 million or more by accident year that have closed during the 2014 to 2023 period shows that each accident year cohort surpasses the count from the previous accident years.   

Recently introduced state tort reform legislation may help to stabilize insurance costs. 

Analysts estimate that litigation costs Georgia residents $880 million annually, or an average of $1,415 per resident.  Sean Kevelighan, Triple-I CEO, says “understanding how these trends drive up costs and identifying policy levers for tort reform legislation can ultimately bring positive outcomes for Georgia’s economy and its consumers and business owners.” 

As part of our commitment to educating stakeholders, Triple-I has launched a multi-faceted campaign to raise awareness of the mounting costs of legal system abuse in Georgia and other states. We invite you to view the video statement by our CEO Sean Kevelighan, interviews capturing the opinions of consumers about legal system abuse, and read the full issue brief, Trends and Insights: Georgia Insurance Affordability. 

Auto Insurance, Highway Safety

Executive Exchange: Importing European Safety to U.S. Roads

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Road safety efforts in Europe offer numerous examples and success stories from which U.S. jurisdictions are learning. In the latest Triple-I Executive Exchange, MAPFRE USA President and CEO Jaime Tamayo sat down with Triple-I CEO Sean Kevelighan to discuss these learnings from an insurance perspective.

“In Europe, road-related fatalities are significantly lower than in the U.S., and we wanted to get a better understanding as to why,” Tamayo said. “We brought together leading experts and policymakers from Europe and the U.S. in transportation, urban planning, public health, and technology to discuss ways in which we can improve policies, innovation, enforcement, and education around safe driving.”

Through its charitable foundation, Fundación MAPFRE, the Spain-based reinsurer is dedicated to “Vision Zero” – a movement begun in Sweden in 1997 with a goal of eliminating traffic fatalities and injury-sustaining crashes. In connection with exporting this effort to the United States, Mapfre for more than 20 years has sponsored a program for the Massachusetts Department of Transportation that consists of a fleet of vehicles that patrol main highways and thoroughfares in the state, helping stranded motorists get back on the road.

“The program has been a great success,” Tamayo said, “covering over 30 million miles of road since its inception.”

 In addition to Massachusetts, Vision Zero has been taking hold in communities across the United States, including metropolitan areas such as New York City, Los Angeles, and Portland, Ore.

In Portland, several data points are helping government officials better understand how to reduce traffic fatalities and injuries, including a high percentage of pedestrian crashes occurring because of long distances between marked crossings. Portland has taken the initiative, building “a system to protect pedestrians includes frequent safe crossings, street lighting, a cultural acceptance of slower speeds and people educated about how to interact safely on the streets.”

In Vision Zero city Hoboken, N.J., seven years have passed without a traffic fatality, even as traffic deaths have reached a 40-year high across the nation.

Learn More:

Triple-I “Trends and Insights”: Personal Auto Insurance Rates (Members only)

Triple-I “Trends and Insights” Commercial Auto (Members only)

IRC Report: Personal Auto Insurance State Regulation Systems

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

Georgia Is Among the Least Affordable States for Auto Insurance

Report: No-Fault Reforms Improved Michigan’s Personal Auto Insurance Affordability

Auto Insurance, Homeowners Insurance, Legal Environment, Market Conditions

Louisiana Reforms: Progress, But More
Is Needed to Stem
Legal System Abuse

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Reforms put in place in 2024 are a positive move toward repairing Louisiana’s insurance market, which has long suffered from excessive claims litigation and attorney involvement that drive up costs and, ultimately, premium rates.

But more work is needed, Triple-I says in its latest Issues Brief.

Research by the Insurance Research Council (IRC) – like Triple-I, an affiliate of The Institutes – shows Louisiana to be among the least affordable states for both personal auto and homeowners insurance.

In 2022, the average annual personal auto premium expenditure per vehicle in Louisiana was $1,588, which is nearly 40 percent above the national average and nearly double that of the lowest-cost Southern state of North Carolina ($840), IRC said. Louisianans also pay significantly more for homeowners coverage than the rest of the nation, with an average annual expenditure of $2,178, representing 3.81 percent of the median household income in the state – 54 percent above the national average.

Louisiana’s low average personal income relative to the rest of the nation contributes to its personal auto insurance affordability challenges, which are exacerbated by its litigation environment.

Louisiana Insurance Commissioner Tim Temple has championed a series of legislative changes that he has said will encourage insurers to return to Louisiana, especially in hurricane-prone areas.

“There are fewer companies willing to write property insurance in Louisiana, and that’s a lot of what our legislation is designed to do,” Temple said. “To help promote Louisiana and change the marketplace so that companies feel like they are going to be treated fairly.”

In June 2024, Gov. Landry signed into law S.B. 355, which puts limitations on third-party litigation funding – a practice in which investors, with no stake in claims apart from potentially lucrative settlements, fund lawsuits aimed at entities perceived as having deep pockets. Third-party litigation funding drives up claims costs and delays settlements, which end up being passed along to consumers in the form of higher premiums.

This progress was undermined when Landry vetoed H.B. 423, which would have reformed the state’s “collateral source doctrine” that allows civil juries to have access to the “sticker price” of medical bills and the amount actually paid by the insurance company.

“In addition to creating more transparency and helping lower insurance rates, this bill would have brought more fairness and balance to our civil justice system,” said Lana Venable, director of Louisiana Lawsuit Abuse Watch in a statement regarding the veto. “Lawsuit abuse does not discriminate – everyone pays the price when the resulting costs are passed down to all of us.”

Continued reforms in 2025 will be necessary to help prevent legal system abuse and promote a more competitive insurance market that leads to greater affordability for consumers, Triple-I says in its brief.

Learn More:

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

Who’s Financing Legal System Abuse? Louisianans Need to Know

Louisiana Litigation Funding Reform Vetoed; AOB Ban, Insurer Incentive Boost Make It Into Law

Louisiana’s Insurance Woes Worsen as Florida Works to Fix Its Problems

Hurricanes Drive Louisiana Insured Losses, Insurer Insolvencies

Auto Insurance, Homeowners Insurance, Technology

Human Needs Drive Insurance and Should Drive Tech Solutions

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By Lewis Nibbelin, Contributing Writer, Triple-I

Maintaining human centricity in an increasingly digitized world was a focus of discussion for many participants at Triple-I’s 2024 Joint Industry Forum (JIF) – particularly during the “Fireside Chat,” featuring Katherine Horowitz, executive vice president and head of business units for The Institutes, and Casey Kempton, president of personal lines at Nationwide.

As generative AI and other technological innovations help streamline the insurance value chain, such processes must continue to align with the human needs intrinsic to insurance, Kempton stressed.

“Insurance is a human business,” Kempton said. “The moment of a claim – of whatever tragedy or inconvenience that has happened – is a human moment. Theres’s emotion involved in that. I don’t expect any robot or machine to take on that experience end-to-end and be able to deliver what folks need in that moment, which is comfort and assurance.”

Rather, new technology presents opportunities to facilitate more proactive and individualized risk management than ever before, while also enabling employees to do what this industry does best: engaging with other people.

Role of telematics

Usage-based insurance, for instance, allows insurers to tailor auto rates based on the policyholder’s driving behavior, tracked by telematics. By providing feedback to encourage safer driving habits, telematics has been found to lower risk and reduce auto premiums, empowering consumers to recognize their direct influence on their insurance rates, Kempton said.

Similarly, advanced smart devices – such as those developed by Whisker Labs (Ting) and Ondo InsurTech (LeakBot) – continuously detect conditions that could lead to damage within a home and notify homeowners before losses occur. The success of these devices has spurred numerous insurance carriers, including Nationwide, to pay for and distribute them to customers.

“Supporting the delivery of these technologies to our customers is critical,” Kempton explained, as is “making the cost of entry accessible.”

Words matter

Kempton noted that mitigative insurance solutions further serve to alleviate widespread public distrust in the industry, which has become “sullied” under misconceptions of insurance as merely a commodity.

Industry language fixated on costs, rather than consumer needs, is partly to blame.

“In insurance, we talk about ‘mitigating loss,’” Kempton said. “That’s how it feels from our perspective – we see claims as losses – but let’s turn that into, ‘how can [insurers] better engender peace of mind and protection for consumers?’”

Louisiana Insurance Commissioner Tim Temple later echoed this sentiment during a panel on legal system abuse, discussing how “billboard attorney” advertising has appropriated the consumer confidence once placed in insurance carriers.

“I remember when insurance companies advertised dependability and stability,” Temple explained. “Now it’s lizards, birds, and jingles… And then you see the attorneys, and they talk about how you’re going to be safe and secure with their service. That’s [the insurance company’s] job.”

Fueled by such advertising, excessive claims-related litigation has cost residents of Louisiana and other states across the country  thousands of dollars in “tort taxes” every year, contributing to rising premium rates as insurers struggle to predict and mitigate protracted claims disputes. Lack of transparency around third-party litigation funding (TPLF), in which investors fund lawsuits in exchange for a percentage of any settlement, exacerbates this financial strain.

“If we can avoid these additional expenses and the severity attached to nuclear verdicts, it benefits all consumers,” Kempton said. Recent reforms in Florida – once the poster child for legal system abuse – indicate as much.

But reform necessarily hinges on collaboration between all stakeholders, which is unattainable without resolving “the consumer mindset we’ve inadvertently created around what the value of insurance is,” Kempton said. Updated legal regulations are equally important to ending legal system abuse as reasserting the key values of insurers – to protect and care for policyholders.

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions, Regulation

JIF 2024: What’s In a Name? When It Comes to Legal System Abuse, A Lot

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By Lewis Nibbelin, Contributing Writer, Triple-I

From “social inflation” to “tort reform” to, simply, “fraud,” settling upon uniform terminology to describe  litigation trends that drive up costs – including insurance premiums – for all Americans is a primary challenge to addressing them, according to participants at Triple-I’s 2024 Joint Industry Forum.

“As we’re trying to raise awareness of this problem with consumers, ‘social inflation’ doesn’t work,” said discussion moderator and Triple-I’s Chief Insurance Officer Dale Porfilio. Though Triple-I previously favored “social inflation,” consumer testing was done that suggested a better name was needed. “That’s when we landed on ‘legal system abuse.’”

“The name absolutely matters,” said Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual. “When you talk to a legislator, whether that’s in Kansas or in Washington, D.C., and you say the words, ‘social inflation,’ they don’t know what you’re talking about. But when you say the words ‘legal system abuse,’ you see the lightbulb go off.”

Louisiana Insurance Commissioner Tim Temple – a self-described “unicorn” among insurance regulators, given his decades-long background in the industry as an agent, broker, and company president – even renamed programs to address “legal system abuse” when he assumed office in January. This shift exemplifies Temple’s commitment to using his experience to shape a regulatory and statutory environment that enhances the attractiveness of Louisiana’s insurance market.

“We’re getting more buy-in now, people understand it,” Temple said. “That’s part of transparency – talking about what it truly is.”

Clear communication is key

Opaque, ill-defined language empowers predatory “billboard attorneys” to define these terms themselves, contributing to pervasive policyholder distrust, said Jeff Sauls, Farmers Insurance head of legislative affairs.

“There’s this perception of the insurance industry amongst the public – and plaintiffs’ attorneys help portray this – as a high-margin business,” he said, when, in reality, “we compete with grocery stores for who can make less money in an average year.”

Attorney advertising – estimated to total over $2.4 billion across the U.S. last year – has commandeered the messaging once associated with insurers, noted Temple, who encouraged the industry to “take back that high ground” of providing “dependability and stability during the worst days of people’s lives” without overuse of brand mascots or jingles.

“We have to remind the public why we exist,” Rangaswami added. “We want to pay claims as expeditiously as possible…. We’re on the side of the consumer, whereas the plaintiffs’ attorney is often on their own side or the investor’s side.”

Third-party litigation funding

With her reference to “investors,” Rangaswami took aim at a little-known, rapidly growing practice called third-party litigation funding (TPLF), in which investors with no stake beyond potential profit step in to fund lawsuits against corporate entities perceived as having deep pockets. As of last year, such investors retained an estimated $15.2 billion in assets for U.S. litigation alone.

Only a handful of states require mandatory disclosure of TPLF, which enables hedge funds and other foreign funders to compound and profit from protracted and even fraudulent U.S. court cases. Secrecy surrounding TPLF prevents insurers and regulators from identifying, let alone mitigating, the risks of increased costs and time to resolve claims disputes.

Preventing adversaries to the U.S. from exploiting TPLF to influence settlement outcomes and access sensitive defense information is another concern.

“We’re looking at TPLF as potentially exacerbating national security risk,” said Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute. “Most people don’t know what TPLF is and the way it can insidiously impact the economy, our businesses, our jobs.”

Everyone is affected

Legal system abuse costs the highly litigious states Louisiana and Georgia over 175,000 jobs combined and thousand-dollar “tort taxes” for each resident per year, earning both states recurring spots on the American Tort Reform Foundation’s list of “Judicial Hellholes.” They also rank among the least affordable places for auto and homeowners’ insurance by the Insurance Research Council – an affiliate of The Institutes, like Triple-I.

Louisiana recently enacted a law enforcing some oversight over TPLF, Temple noted, as well as repealed a unique “three-year rule” that impeded actuarially-sound underwriting. But as the state’s bodily injury claims climb well over the national average, more reform is needed to return insurance profitability to the state.

“One thing I would look to is importing some of the good things Florida has done,” Theodorou suggested, explaining that reform curtailing contingency and one-way attorneys’ fees “have brought down the number of lawsuits against insurance companies by 24 percent” for the second consecutive three-quarter period. “Notice of intention to sue is also down by double digits. It’s working, so let’s learn from that.”

Considering the fact that the former “poster child” for legal system abuse generated over 70 percent of all homeowners insurance litigation nationally in 2022 – despite accounting for only about 15 percent of total homeowners claims – Florida’s reduced premium growth and nine new property insurers this year reveal the likely efficacy of such reforms in other states.

Education and coalition building

But such reform requires advocacy, which requires consumer education and coalition building across diverse stakeholder groups, Rangaswami pointed out.

Fixing “an economy-wide problem,” she explained, requires an “economy-wide coalition.”

The end goal is not a “tilted playing field,” Sauls emphasized. “We’re trying to get to a place where we are all on level footing, without being exploited by plaintiffs’ attorneys.”

Legal system abuse “is going to be a pressure point for the industry moving forward,” stressed Fred Karlinsky, shareholder and global chair of Greenberg Traurig, LLP. “No state is immune from what we’ve seen in Florida.”

Karlinsky emphasized that spreading normalization of “nuclear” (over $10 million) and an emergent class of “thermonuclear” (over $100 million) verdicts will stall reform in newly targeted states.

Rangaswami pointed out that not all the news has been bad.

“We had some great wins in 2024,” she said, citing Florida’s improved insurance market and legislation introduced at both the federal and state levels as movement in a promising direction. “But we have to keep this momentum up.”

Learn More:

Triple-I Issues Brief: Legal System Abuse

Agents Play Critical Role in Navigating Impacts of Legal System Abuse on Customers

Legal System Abuse/Social Inflation Adds Costs and Challenges for US Casualty Insurance: AM Best

Who’s Financing Legal System Abuse? Louisianans Need to Know

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

How Georgia Might Learn From Florida Reforms

U.S. Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs: New IRC Report

Inflation Continues to Drive Up Consumers’ Insurance CostsTriple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

Auto Insurance, Industry Financials, Insurers and the Economy, Legal Environment, Market Conditions

Inflation Continues
to Drive Up Consumers’ Insurance Costs

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By William Nibbelin, Senior Research Actuary, Triple-I

Insurance is priced to reflect the underlying risk of every policy. When more claims are filed and the average amount paid of those claims increases, insurance becomes more expensive. A measure of underwriting profitability for insurance carriers is the combined ratio calculated as losses and expense divided by earned premium plus operating expenses divided by written premium. A combined ratio over 100 represents an underwriting loss. When expected losses increase, an insurance carrier must increase premiums by raising rates to maintain a combined ratio under 100.

Commercial auto insurance has recorded a net combined ratio over 100 nine times out of 10 between 2014 and 2023, and, according to the latest forecasting report by Triple-I and Milliman, continues to worsen in 2024. According to the Triple-I Issues Brief, personal auto insurance has had a net combined ratio over 100 for the past three years, with a 2023 net written premium (NWP) growth of 14.3 percent, which was the highest in over 15 years.

From 2014 through 2023 economic and social inflation added $118.9 billion to $137.2 billion in auto liability losses and defense and cost containment (DCC) expenses. This represents 9.9 percent to 11.5 percent of the $1.2 trillion in net losses and DCC for the period and an increase of 24 percent to 31 percent from the previous analysis on years 2013 through 2022.

A new study – “Increasing Inflation on Auto Liability Insurance – Impact as of Year-end 2023” – is the fourth installment of research on the impact of economic and social inflation on insurer costs and claim payouts. Compared to the prior study, Commercial Auto Liability loss and DCC is 20.7 percent to 27.0 percent ($43 billion to $56 billion) higher due to increasing inflation. Personal auto liability loss and DCC is 7.7 percent to 8.2 percent ($76 billion to $81 billion) higher from increasing inflation.

Key Takeaways

  • The compound annual impact of increasing inflation ranges from 2.2 percent to 2.9 percent for commercial auto liability, which is higher than the personal auto liability estimate of 0.7 percent. However, the impact of increasing inflation from a dollar perspective is much higher for personal auto liability compared to commercial auto liability. This is due, in part, to the underlying size of the line of business.
  • Frequency of auto liability claims per $100 million GDP for 2023 is unchanged for commercial auto liability and lower for personal auto liability compared to 2020, when frequency dropped at the onset of the COVID-19 pandemic for both lines.
  • Severity of auto liability claims continues to increase year over year and has increased more than 70 percent from 2014 to 2023 for both lines.

Researchers Jim Lynch, FCAS, MAAA, Dave Moore, FCAS, MAAA, LLC, Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, and William Nibbelin, Triple-I’s senior research actuary used a similar methodology as prior studies. Loss development patterns were used to identify inflation for selected property/casualty lines in excess of inflation in the overall economy. The new study extends the model with annual statement data through year-end 2023.

Commercial Auto Liability

The prior study indicated claim severity (size of losses) had risen 72 percent overall from 2013 to 2022, with the median annual increase at 6.3 percent. The new study indicates an additional annual increase of 6.6 percent from 2022 to 2023. The report compares the compound annual growth rate of 6.6 percent from 2014 through 2023 to the compound annual increase in the consumer price index (CPI) of 2.8 percent during this same time. With a flat frequency trend combined with an increasing severity trend in recent years for commercial auto liability, this comparison calls out the higher inflation faced by insurers beyond just general inflation trends.

Personal Auto Liability

While replacement costs remain flat to negative providing relief to personal auto physical damage, personal auto liability represents approximately 60 percent of the overall personal auto line. Similar to commercial auto liability – but slightly lower – claim severity for personal auto liability has increased at a compound annual rate of 6.3 percent from 2014 through 2023. However, unlike commercial auto liability, the frequency for personal auto liability has declined slightly in 2022 and 2023, with 85 claims per $100 million GDP in 2023 compared to 90 in 2022 and 100 in 2021.

Limitation of industry data

The report relies on industry data as reported by insurers to the National Association of Insurance Carriers (NAIC) and made available through different reporting suppliers, such as S&P Global Market Intelligence. As such, different individual inflationary elements – whether economic, social, or otherwise – cannot be determined using the underlying actuarial methodologies.

However, like prior studies the bulk of increasing inflation before 2020 is attributed to social inflation, while social inflation and economic inflation dominate increasing inflation together beginning in 2020.

Triple-I continues to foster a research-based conversation around social inflation as part of legal system abuse. For an overview of the topic and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub.