Florida is one of the least affordable states for personal auto insurance, according to a new study by the Insurance Research Council (IRC). Claims trends are pushing premium rates up nationwide, and Florida is being hit particularly hard.
In 2020, the average expenditure for auto insurance was $1,342 in Florida, more than 30 percent higher than the national average, the IRC report says, citing data from the National Association of Insurance Commissioners (NAIC). In terms of affordability, IRC says, auto insurance expenditures were 2.39 percent of the median household income for the state. Only Louisiana was less affordable.
“Efforts to improve auto insurance affordability must begin with the underlying cost drivers,” the IRC report says. In nearly every of these categories, Florida costs are well above the national average:
Accident frequency: The number of property damage liability claims per 100 insured vehicles in Florida is 10 percent above the national average.
Repair costs: For years, the average cost of a property damage claim in Florida was below the national average. However, evidence suggests repair costs are increasing faster in Florida than elsewhere.
Injury claim relative frequency: Floridians show a greater propensity to file injury claims once an accident occurs, with a relative claim frequency 40 percent higher than the national average. Florida is the only no-fault state with an above-average ratio of bodily injury to property damage claim frequency.
Injury claim severity: The median amount paid per claim for auto injury insurance claims for all injury coverages combined is much higher in Florida.
Medical utilization: Florida auto claimants are more likely than those in other states to receive diagnostic procedures, such as magnetic resonance imaging (MRI).
Attorney involvement: Florida claimants are more likely to hire attorneys. Attorney involvement has been associated with higher claim costs and delays in settlement time.
Fraud and buildup: The percentage of all auto injury claims with the appearance of claim fraud and/or buildup is evidence of Florida’s culture of fraud.
Uninsured motorists: Florida has one of the highest rates of uninsured motorists, both a symptom and a cause of affordability challenges.
Litigation climate: According to a survey of business leaders, Florida’s legal environment ranks near the bottom of state liability systems in terms of fairness and reasonableness.
“Unique features in Florida’s insurance system and a long‐standing culture of claim and legal system abuse have allowed some medical and legal professionals to generate substantial income for themselves at a significant cost to Florida drivers,” said Dale Porfilio, IRC president and Triple-I chief insurance officer. Triple-I and IRC are both affiliated with The Institutes.
Policymakers in the Sunshine State enacted substantial property insurance reform in late 2022 to address the affordability and availability crisis in homeowners’ insurance and pledged to tackle similar issues in other lines of insurance to ease the financial burden that paying for auto insurance represents for Florida drivers.
Bills being addressed by the state’s Senate and House focus on significant tort reform to stop lawsuit abuse, including the elimination of one-way attorney fees for litigated auto claims and abolition of assignment of benefits for auto insurance claims — a generator of fraud and litigation. One-way attorney fees allow drivers who successfully sue their insurer to recoup attorney fees – but not the other way around.
Today’s inflationary conditions may increase interest for group captives – insurance companies owned by the organizations they insure – according to a new Triple-I Executive Brief.
Group captives recruit safety-conscious companies with better-than-average loss experience, with each member’s premium based on its own most recent five-year loss history. Additionally, the increased focus on pre-loss risk management and post-loss claims management can drive members’ premiums down even further by the second and third year of membership.
“Each owner makes a modest initial capital contribution,” states the paper, Group Captives: An Opportunity to Lower Cost of Risk. “The lines of coverage written typically are those with more predictable losses, such as workers compensation, general liability, and automobile liability and physical damage.”
With these benefits, the group captive model can help to control spiraling litigation costs. This is particularly important as attorney involvement in commercial auto claims – notably in the trucking industry – drives expensive litigation and settlement delays that inflate companies’ expenses.
Indeed, a 2020 report from the American Transportation Research Institute found that average verdicts in the U.S. trucking industry grew from approximately $2.3 million to almost $22.3 million between 2010 and 2018 – a 967 percent increase, with the potential for even higher verdicts looming.
Group captives can improve control over these costs through careful claims monitoring and review, often through providing additional layers of support that improves claims adjusting effectiveness and efficiency.
“Given that members’ premiums are derived from their own loss history, this is yet another way that they are able to lower their premiums, proactively managing and controlling the losses that do occur,” the Triple-I report mentions. “Group captives can provide a viable way to protect companies across several lines of casualty insurance. Their prominence is likely to grow as economic and litigation trends continue to increase costs.”
Most companies that join group captives are safety-conscious, despite often being entrepreneurial risk takers. “While they embrace the risk-reward trade-off, they’re not gamblers,” said Sandra Springer, SVP of Marketing for Captive Resources (CRI), a leading consultant to member-owned group captive insurance companies.
“They are successful, financially stable, well-run companies that have confidence in their own abilities and dedication to controlling and managing risk,” Springer added. “They believe they will outperform actuarial projections, and a large percentage of them do.”
Louisiana Insurance Commissioner Jim Donelon last week issued a cease-and-desist order against a Houston-based law firm, accusing it of fraud involving potentially hundreds of hurricane-related claims in his state.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said in a press release. “It’s rare for the department to issue regulatory actions against entities we don’t regulate, but in this case, the order is necessary to protect policyholders from the firm’s fraudulent insurance activity.”
According to Donelon, the law firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.
The Louisiana property insurance market has been deteriorating since the state was hit by record hurricane activity in 2020 and 2021, to the extent that 11 insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and September 2022. Insurers have paid out more than $23 billion in insured losses from over 800,000 claims filed from the two years of heavy hurricane activity. The largest property-loss events were Hurricane Laura (2020) and Hurricane Ida (2021).
In addition to driving insurer insolvencies, the growing losses have caused a dozen insurers to withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
Louisiana’s troubles parallel those of another coastal state, Florida, but there are significant differences. Florida’s problems are largely rooted in decades of legal system abuse and fraud, whereas Louisiana’s have had more to do with insurers being undercapitalized and not having enough reinsurance coverage to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021. In general, Louisiana insurers have not experienced the level of excessive litigation that Florida insurers have faced.
“It now appears some trial attorneys are trying to take a page out of the Florida playbook by engaging in litigation abuse against Louisiana property insurers,” said Triple-I Director of Corporate Communications Mark Friedlander. “We commend Commissioner Donelon for quickly addressing these fraudulent practices.”
According to reporting by the Times Picayune/New Orleans Advocate, an investigation by the Louisiana Department of Insurance found the Houston-based firm engaged in insurance fraud and unfair trade practices through Alabama-based Apex Roofing and Restoration and has faced accusations of potentially criminal behavior in courts across the state. In one such case, the paper reported, a woman testified that she had never intended to retain the law firm when she hired the roofing company to fix her hurricane-damaged roof.
“The firm told her insurance company that it represented her and even filed a lawsuit on her behalf, though she said she was unaware of it,” the paper said.
Legal system abuse is a pervasive problem that contributes to higher costs for insurers and policyholders nationwide, as well as to rising costs generally, given the importance of insurance in development and commerce. Triple-I is committed to informing the discussion around this critical issue.
Florida Gov. Ron DeSantis’s proposed insurance fraud and legal system abuse reforms, announced this week for consideration during the legislative session that begins in March, would build on measures approved in the closing weeks of 2022 and go a long way toward fixing the state’s insurance crisis.
Legislation passed during the 2022 special session eliminated one-way attorney fees and assignment of benefits (AOB) arrangements for property insurance claims. Gov. DeSantis’s proposal would go further, eliminating these mechanisms and “attorney fee multipliers” for all lines of insurance.
“For decades, Florida has been considered a judicial hellhole due to excessive litigation and a legal system that benefitted the lawyers more than people who are injured,” DeSantis said in his announcement. “We are now working on legal reform that is more in line with the rest of the country and that will bring more businesses and jobs to Florida.”
Before the 2022 reforms, state law required insurers to pay the fees of homeowners insurance policyholders who successfully sued over claims, while shielding policyholders from paying insurers’ attorney fees when the policyholders lose. The legislation also eliminated AOBs – agreements in which property owners sign over their claims to contractors, who then work with insurers.
AOBs are a standard practice in insurance, but in Florida this consumer-friendly convenience has long served as a magnet for fraud. The state’s legal environment – including some of the most generous attorney-fee mechanisms in the country – has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then sue insurers that deny or dispute the claims.
As a result, Florida accounts for nearly 80 percent of the nation’s homeowners’ insurance lawsuits, but only 9 percent of claims, according to the state’s Office of Insurance Regulation.
Eliminating these two mechanisms for property claims addresses much of the insurance fraud in the state. Eliminating them for all lines would be a promising sign that the state is truly committed to addressing the root causes of the crisis.
Florida’s insurance crisis didn’t happen overnight, and it will take years for the impacts of fraud and legal system abuse to be wrung out of the system. Policyholders won’t see premium benefits any time soon. Job 1 is to “stop the bleeding” as insurers fail, leave the state, or stop writing critical personal lines coverages like auto and homeowners.
Triple-I has published a new Issues Brief about the crisis and the state’s efforts to repair it.
Legislation being considered in Illinois underscores the need for legislators and other policymakers to become better educated about the importance of risk-based pricing and how it works.
The Motor Vehicle Insurance Fairness Act would bar insurers from considering nondriving factors, such as credit scores, when setting premium rates. The prohibitions include factors that actuaries have demonstrated correlate strongly with the likelihood of a driver eventually submitting a claim, as well as ones insurers already are prohibited from using.
This suggests a lack of understanding about risk-based pricing that is not isolated to Illinois legislators – indeed, similar proposals are submitted from time to time at state and federal levels.
Confusion is understandable
Risk-based pricing means offering different prices for the same coverage, based on risk factors specific to the insured person or property. If policies were not priced this way, lower-risk drivers would subsidize riskier ones. Charging higher premiums to higher-risk policyholders helps insurers underwrite a wider range of coverages, improving both availability and affordability of insurance.
The concept becomes complicated when actuarially sound rating factors intersect with other attributes in ways that can be perceived as unfairly discriminatory. For example, concerns are raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. Critics say this can lead to “proxy discrimination,” with people of color in urban neighborhoods being charged more than their suburban neighbors for the same coverage.
Confusion is understandable, given the complex models used to assess and price risk. To navigate this complexity, insurers hire actuaries and data scientists to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.
Appropriate protections are in place
It’s important to remember that insurers don’t make money by notinsuring people. They are in the business of pricing, underwriting, and assuming risk.
Because of the critical role insurers play in facilitating commerce and protecting the lives and property of individuals, insurance is one of the most heavily regulated industries on the planet. To ensure that sufficient funds are available to pay claims, regulators require insurers to maintain a cushion called policyholder surplus.
Credit rating agencies, such as Standard & Poor’s and A.M. Best, expect insurers to have surpluses exceeding what regulators require to keep their financial strength ratings. A strong financial strength rating enables insurers to borrow money at favorable rates – further promoting insurance availability and affordability.
On top of these constraints, state regulators have the authority to limit the rates insurers can charge within their jurisdictions.
No profit, no insurers — no insurers, no coverage
Like any other business, insurers must make a reasonable profit to remain solvent. Because they can’t just move money around as more lightly regulated industries can, the only way to generate underwriting profits is through rigorous pricing and expense and loss controls. Insurers don’t want to overcharge and send consumers shopping for a better price, or undercharge and experience losses that erode their ability to pay claims.
In this context, it’s important to note that personal auto and homeowners insurance premium rates have remained relatively flat as inflation and replacement costs have soared through the pandemic and supply-chain issues related to Russia’s invasion of Ukraine (see chart below).
During this period, writers of these coverages have struggled to turn an underwriting profit. Personal auto has been a primary driver of the overall industry’s weak underwriting results. Dale Porfilio, Triple-I’s chief insurance officer, recently said the 2022 net combined ratio for personal auto insurance is forecast at 111.8, 10.4 points worse than 2021 and 19.3 points worse than 2020. Combined ratio represents the difference between claims and expenses paid and premiums collected by insurers. A combined ratio below 100 represents an underwriting profit, and one above 100 represents a loss.
Even as inflation moderates, loss trends in both of these lines – associated with increased accident frequency and severity in auto and extreme-weather trends in homeowners and auto – will require premium rates to rise. The question is: Will the cost fall evenly across all policyholders, or will rates more accurately reflect policyholders’ risk characteristics?
Protected classes
The United States recognizes “protected classes” – groups who share common characteristics and for whom federal or state laws prohibit discrimination based on those traits. Race, religion, and national origin are most commonly meant when describing protected classes in the context of insurance rating, and insurers generally do not collect information on these “big three” classes. Any discrimination based on these attributes would have to arise from using data that might serve as proxies for protected classes.
Algorithms and machine learning hold great promise for ensuring equitable pricing, but research shows these tools can amplify implicit biases.
The insurance industry has been responsive to such concerns. For example, recent Colorado legislation requires insurers to show that their use of external data and complex algorithms does not discriminate against protected classes, and the American Academy of Actuaries has offered extensive guidance to the state’s insurance commissioner on implementation. The Casualty Actuarial Society also recently published a series of papers (see links at end of post) on the topic.
Correlation matters
Certain demographic factors have been shown to correlate with increased risk of submitting a claim. Gender and age correlate strongly with crash involvement, as the National Highway Traffic Safety Administration (NHTSA) data illustrated at right shows.
Likewise, National Association of Insurance Commissioners (NAIC) data below clearly shows higher credit scores correlate strongly with lower crash claims.
Similar correlations can be shown for other rating factors. It’s important to remember that no single factor is determinative – many are used to assess a policyholder’s risk level.
Consumers “get it” – when it’s explained to them
A recent study by the Insurance Research Council (IRC) found consumer skepticism about the connection between credit history and future insurance claims appears to decline when the predictive power of credit-based insurance scores is explained to them. Through an online survey with more than 7,000 respondents, IRC found that:
Nearly all believe it is important to maintain good credit history, and most believe it would be “very” or “somewhat” easy to improve their credit score;
Consumers see the link between credit history and future bill paying but are less confident about the link between credit history and future insurance claims.
After reading that many studies have demonstrated its predictive power, most agree with using credit-based insurance scores to rate insurance, especially for drivers with good credit who could benefit.
If consumers “get it” when you share the data with them, perhaps policymakers and legislators can, too.
Florida legislation proposed last week would prevent the state’s motorists from assigning their legal rights in auto insurance claims to repair shops.
Assignment of benefits (AOB) is a standard practice in the insurance world. In Florida, however, this efficient, customer-friendly way to settle claims has long served as a magnet for fraud. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurers that deny or dispute the claims.
Legislation approved in the closing weeks of 2022 took several crucial steps toward resolving the state’s property/casualty insurance crisis, including elimination of the state’s AOB laws with respect to property claims. But it didn’t affect auto-related AOBs.
Intended to help consumers
Florida’s auto glass law – originally intended to encourage drivers to repair or replace damaged windshields by prohibiting insurers from charging deductibles for windshield damage – is being exploited by glass-repair shops all over Florida. Unscrupulous vendors hire workers to canvas neighborhoods, enticing vehicle owners to sign up for “free” windshield replacements. They get car owners to sign an AOB contract that assigns the owners’ legal rights to the repair shop.
The shop then can sue the consumer’s insurer if it doesn’t pay what the shop demands. The result is a lawsuit by the vendor in the consumer’s name.
Lawyers have a strong incentive to file suits, as the insurer is required to pay their fees if it loses in court. This has resulted in a “sue-to-settle” system, in which lawyers file suits over very small disputes to force a settlement.
Hope for the future
“What began as a small regional issue a decade ago with a few lawyers and some auto repair shops has blown up to become a major problem throughout the state,” said Mark Friedlander, Triple-I’s director of corporate communications and a Florida resident. Between 2011 and 2021, the number of auto glass lawsuits in Florida rose more than 4,000 percent, from 591 to more than 28,000. A National Insurance Crime Bureau (NICB) analysis found that Florida had the highest number of questionable auto-glass claims among the 50 states in 2020.
WhileFlorida is a “no-fault” state – meaning both parties in an accident submit claims to their own insurer, regardless of fault – it ranks high for attorney involvement in accident claims, the Insurance Research Council (IRC) has found. Attorney involvement is associated with higher costs, and IRC also has found Florida to be among the least affordable auto insurance markets.
The new measure, filed for the 2023 legislative session that starts March 7, offers hope that Florida is finally serious about solving the decades-old mechanisms that have fed the state’s current insurance crisis. Taken together, the two pieces of legislation will help stabilize Florida’s insurance market, but it will take years for the impacts of fraud and legal system abuse to be wrung out of the system.
Florida took center stage at JIF 2022, as a group of panelists discussed growing courtroom costs and the rise of legal system abuse.
“Legal system abuse is a combination of factors, including social inflation, nuclear verdicts, third party litigation funding, tort reform pullback, cost shifting schemes, and attorney advertising,” opened Ronna Ruppelt, CEO of CLM & Claims Pages, who served as moderator.
Ruppelt added, “Florida is the poster child for legal system abuse.”
The panel analyzed the general landscape of these issues, and how Florida became the epicenter of many of these issues.
They noted that in Florida, roof and windshield claims are part of this cottage industry, driven by plaintiff fee recoveries more than the subject of the litigation itself. The costs of roofs have dramatically increased even in the past three years. This is not primarily driven by disasters.
“In 2021, Florida had 116,000 property insurance lawsuits pending,” Ruppelt said. “The state is on pace for approximately 130,000 in 2022.”
Most states only have a few hundred. California, the most populous state in the U.S., had a mere 3,500 property insurance lawsuits pending in 2021.
“The numbers highlighted are staggering,” said Fred Karlinsky, shareholder and global co-chair of Greenberg Traurig, LLP. “It’s been recognized at the highest levels of state government.”
With the recent gubernatorial election in Florida, this problem has only become more visible. Incumbent Ron DeSantis and his challenger (and former governor of Florida) Charlie Crist debated over the costs of roof replacement, as well as litigation over home insurance.
“There may be a $10,000 judgement award, but millions of dollars of fees,” Karlinsky said.
Indeed, the property insurance market has become similar to health care, with assignment of benefits (AOBs)—in which an insured signs their benefits over to the medical provider—getting paid by insurers. AOBs utilize unscrupulous contractors that come in before the insurers, and “make your home a disaster zone.”
“The insurers have no way to know what the damage was, and now they have to fight these claims,” Karlinsky added, noting that once the insurer enters the court system, it often results in nuclear verdicts.
“Florida is tougher for adjusters,” mentioned Joseph Blanco, the president of Crawford & Company. “After we confirmed up for Hurricane Irma, there have been billboards all over the place saying don’t believe adjusters.”
Attacking the credibility of adjusters, Blanco said, makes it very difficult for insurers. This only adds to unrealistic expectations for claims, making it more challenging to settle pre-litigation.
Though the panel recognized this kind of legal abuse began in the 80’s and experienced upward trends in the 90’s and early 2000’s, there were calls at the time for nationwide tort reform. However, the lawyers involved in these suits have become more sophisticated, making it even more challenging to confront this issue.
“The lawyers involved identify a theory of liability, find litigation funders, create advertisements, and then they go forum shopping,” said Harold H. Kim, the president of the Institute for Legal Reform, and the chief legal officer and executive vice president of the U.S. Chamber of Commerce. “They roll the dice to see if they can achieve a settlement or a nuclear verdict, which shifts the value of negotiations.”
“It’s so pernicious that the corporate community is in the crosshairs,” Kim added. “The stability of the rule of law and the ability to operate a business is critically challenging.”
The panelists agreed that problems surrounding legal abuse are only growing more significant.
“What we have seen is the use of plaintiff attorneys are moving out of Florida to you,” Karlinsky said. “AOBs and the roof phenomena are not just going to be in the large states. We’re seeing them all over the place. The plaintiff’s bar does not have the same restrictions as the insurance industry.”
“What happens in Florida doesn’t stay in Florida,” concluded Kim.
Litigation costs could add between $10 billion and $20 billion to insured losses from Hurricane Ian, adding to the woes of Florida’s already struggling homeowners’ insurance market, says Mark Friedlander Triple-I’s corporate communications director.
Early estimates put Ian’s insured losses above $50 billion.
“Based on the past history of lawsuits following Florida hurricanes and the state’s very litigious environment, we expect a large volume of lawsuits to be filed in the wake of Hurricane Ian,” Friedlander said in an interview with Insurance BusinessAmerica.
Most suits are expected to involve the distinction between flood and windstorm losses. Standard homeowners’ policies exclude flood-related damage from coverage, but differentiating between wind and flood damage in the aftermath of a major hurricane can be challenging.
Flood insurance is available from FEMA’s National Flood Insurance Program, as well as from a growing number of private carriers.
Trial attorneys are “already on the ground” and soliciting business in some of the hardest hit areas, Friedlander said. “This will be a key element in the solvency of struggling regional insurers who are already facing financial challenges.”
Six Florida-based insurers have already failed this year. Florida accounts for 79 percent of all U.S. homeowners’ claims litigation despite representing only 9 percent of insurance claims, according to figures shared by the Florida governor’s office. Litigation has contributed to double-digit premium-rate increases for home insurance in recent years, with Florida’s average annual home-insurance premium of $4,231 being among the nation’s highest.
“Floridians are seeing homeowners’ insurance become costlier and scarcer because for years the state has been the home of too much litigation and too many fraudulent roof-replacement schemes,” Triple-I CEO Sean Kevelighan said. “These two factors contributed enormously to the net underwriting losses Florida’s homeowners’ insurers cumulatively incurred between 2017 and 2021.”
Trevor Burgess, CEO of Neptune Flood Insurance, a St. Petersburg, Fla.-based private flood insurer, said that in all locations pummeled by Ian, the percentage of homes covered by flood policies is down from five years ago. Friedlander told Fox Weather that, while more than 50 percent of properties along Florida’s western Gulf Coast are insured for flood, “inland…the take-up rates for flood insurance are below five percent.”
While Florida is at particularly severe and persistent risk of hurricane-related flooding, the protection gap is by no means unique to the Sunshine State. Inland flooding due to hurricanes is causing increased damage and losses nationwide – often in areas where homeowners tend not to buy flood insurance.
In the days after Hurricane Ida made landfall in August 2021, massive amounts of rain fell in inland, flooding subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water. In the hardest-hit areas, flood insurance take-up rates were under five percent.
Damaging floods that hit Eastern Kentucky in late July 2022 and led to the deaths of 38 people also were largely uninsured against. A mere 1 percent of properties in the counties most affected by the flooding have federal flood insurance.
“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,” Keith Wolfe, Swiss Re’s president for U.S. property and casualty, said in a recent Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”
Delaware’s state Legislature adjourned for the year without the House taking action on Senate Bill (SB) 231, which called for prohibiting the use of gender as a rating factor in personal automobile insurance policies.
The measure was based on research conducted with the Consumer Federation of America that contended many insured Delaware women are charged more than men, even when all other factors are the same. If signed into law, it would have required Delaware’s auto insurers to revisit how they price their personal automobile insurance policies for all drivers. Six states – California, Hawaii, Massachusetts, Michigan, North Carolina, and Pennsylvania – already have similar laws in place.
“The Delaware state Legislature and the Department of Insurance have the right and responsibility to govern and regulate how insurance companies conduct business within the State of Delaware,” Triple-I Chief Insurance Officer Dale Porfilio wrote in response to SB 231, which was approved by the Delaware Senate in April 2022. However, in his letter to Delaware Insurance Commissioner Trinidad Navarro, he raised several concerns with the underlying research, including:
Website Quotes vs. Issued Policies. While the Internet and electronic processing of quotes have dramatically improved the speed and accuracy of quotes, Porfilio wrote, “Many details can change for the portion of quotes which ultimately become issued policies, causing quotes to not be 100 percent accurate for issued premiums.”
Single Hypothetical Insured vs. Range of Actual Insureds. The report studied hypothetical 35-year-old drivers, then drew a conclusion about the full breadth of female and male drivers in the state of Delaware.
Aggregation across Zip Codes. Pricing methodologies are refined to very specific territorial definitions, which vary by insurer, and the report does not describe how the sample was aggregated across Zip Codes.
Porfilio explained that a consequence of enacting S.B. 231 would be a redistribution of who pays how much premium, with most of the premium increases paid by female policyholders (notably at younger ages), and a majority of the premium decreases received by male policyholders.
Critics of U.S. auto insurer pricing practices have expressed concerns that certain rating factors discriminate against certain groups. Triple-I has explained in multiple contexts how U.S. auto insurers use a wide variety of rating factors to accurately price policies. These factors must conform to the laws and regulations of the state in which the auto insurance policies are sold, and eliminating any one could force less-risky policyholders to overpay and allow those with greater risk to pay less than they should.
Most Americans believe attorney advertising increases the number of liability insurance claims and lawsuits, according to recent research from the Insurance Research Council (IRC). The survey also indicated that consumers see a connection between attorney advertising and insurance costs.
The IRC – like Triple-I, an affiliate of The Institutes – also found that consumer awareness of third-party litigation funding has increased, though many Americans remain uncertain what to think of the practice. Litigation funding – in which third-party investors assume all or part of the cost of a lawsuit in exchange for a percentage of the settlement – is often cited as contributing to “social inflation.” Social inflation refers to the impact of rising litigation costs on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.
“The public sees a connection between attorney ads and the cost of insurance,” said IRC President and Triple-I CEO Dale Porfilio, FCAS, MAAA. “Two-thirds of respondents who had an opinion said advertising by attorneys increases the number of liability claims and lawsuits. Fifty-nine percent said such advertising increases the cost of insurance.”
The survey also found 81 percent of Americans had seen an attorney advertisement within the past year. Thirty-nine percent had never heard of the term “litigation funding.”
Consumers generally expect insurers to settle auto insurance claims fairly and quickly, but one in four say they would hire an attorney before even contacting an insurer;
The views of many consumers about the benefits of hiring attorneys to help with insurance claims conflict with evidence from claims-based research;
Most Americans believe there are too many personal injury lawsuits today;
Significant generational differences exist on these topics, with younger respondents being far more likely than older respondents to favorably view attorney involvement and litigation; and
The public’s level of understanding suggests some educational opportunities for those seeking to address costs in the insurance system.
“This survey builds on many years of IRC work examining the role of attorneys in insurance claims and the resulting consequences,” Porfilio said. “Our longstanding series of closed auto injury claim studies has shown an ever-increasing rate of attorney involvement, even among no-fault claims.”
Porfilio noted that these studies consistently show that claimants who hired attorneys waited significantly longer to receive their settlements and – after medical expenses and legal fees – those settlements were smaller than for claimants who did not.
“Given the costs added to the system and the lack of evidence of clear benefit for the claimant, it is important to understand public attitudes about attorney involvement,” Porfilio said.
