By Dr. Michel Léonard, Chief Economist and Data Scientist,and Riley Conlon, Research Analyst, Triple-I
U.S. employment remains more resilient than expected given monetary tightening, adding 253,000 jobs in April, and pushing the unemployment down to 3.4 percent in April compared to 3.5 percent in March.
Jobs growth has been positive for the last 26 months, with the U.S. economy now having replaced most of the jobs lost at the beginning of the pandemic. Employment for the Insurance Carriers and Related Activities subsector specifically continues to outperform wider U.S. employment. The unemployment rate for the insurance industry was 1.6 percent in April, up from 1.5 percent in March.
Employment’s resilience and the historically low current unemployment rate are likely to add to pressure from inflation hawks on the Fed to not only continue increasing rates but to make each rate hike bigger. Based on Triple-I’s model, the spread between actual employment and the pre-COVID forward trend, which has been narrowing since the end of the pandemic, is likely to stabilize at its current level.
Aligned with this forecast and our conversations with policy makers, our view is that it is unlikely that the stronger-than-expected April jobs performance will lead the Fed to aggressively accelerate the pace of current monetary tightening; it may, however, expand the duration of the current tightening cycle.
U.S. employment has been steadily heading back to its pre-COVID growth trend. This shows great resilience, given monetary tightening. Expect the Fed to continue with “Slow and steady wins the race,” even though calls for “Monetary shock and awe” will likely grow stronger.
The cost of claims per insured home in the United States has increased at a rate outpacing inflation over the past 20 years, according the Insurance Research Council (IRC) — like Triple-I, an affiliate of The Institutes.
A new IRC study, Trends in Homeowners Insurance Claims: 2001–2021, attributes this to a combination of natural catastrophes, human-made disasters, rising home-repair costs, and ongoing population migration into disaster-prone areas.
Insurers also continue to wrestle with insurance fraud and claim abuse following disastrous events. These trends have cut into profits and led several major insurers to reduce their capacity in some U.S. states or leave the homeowners market entirely.
Other findings include:
Countrywide average loss costs (average claim payment per insured home) increased throughout the past two decades and rose nine percent in 2021.
Claim severity is increasing, while frequency is declining—in part because of widespread adoption of higher policyholder deductibles, including percentage deductibles for specified perils, and premium surcharge programs designed to reduce the number of lower-cost claims.
Catastrophe losses play an increasing role because of natural disaster trends and the methods used to define and categorize catastrophe claims.
Average loss costs for claims vary widely by state. States with the highest loss costs are Louisiana and Mississippi; states with the lowest are Hawaii and Maine.
States with the highest claim frequency over the period include Louisiana, Mississippi, and Oklahoma. States with the highest severity include California, Alaska, and Florida.
“During the two decades of the study period, the U.S. homeowners market has experienced a surge in volatility, mainly driven by a barrage of disasters, such as hurricanes Katrina, Ike, Michael, Rita, Sandy and Wilma and California fires,” said Dale Porfilio, IRC president and chief insurance officer for Triple-I.
Porfilio also noted that another challenge facing the homeowners insurance market is the continued threat of insurance fraud and claim abuse, especially after natural disasters.
“Industry and government organizations have increased efforts to inform consumers about potential scams, to investigate and prosecute the perpetrators, and to enact legislative changes to make systems less vulnerable to abuse,” Porfilio added.
The legislation – signed into law by Gov. Eric Holcomb on April 20 – requires that each party in a civil proceeding and each insurer that has a duty to defend a party in court be notified of any litigation funding agreement before the case begins.
The U.S. Government Accountability Office defines third-party litigation funding as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it.” Global multi-billion-dollar investing firms have made third-party litigation funding their sole or primary business and are experiencing strong growth.
As the market lacks transparency, estimates on its size can vary but, according to Swiss Re, more than half of the $17 billion invested into litigation funding globally in 2020 was deployed in the United States. Swiss Re estimates the market will be as big as $30 billion by 2028. Meanwhile, affordability of insurance coverage – especially for commercial auto products – has come under threat from increases in litigation and claim costs.
Several states have preceded Indiana in seeking to increase transparency around third-party litigation funding. In 2018, New York enacted legislation that added Section 489 to the New York Judiciary Law. This law mandates the disclosure of litigation financing agreements in class action lawsuits and certain aggregate settlement cases. In the same year, Wisconsin instituted a statutory provision requiring the disclosure of litigation funding arrangements. West Virginia followed suit in 2019.
In 2021, the U.S. District Court for the District of New Jersey amended its rules to require disclosures about third-party litigation funding in cases before the court. The Northern District of California imposed a similar rule in 2017 for class, mass, and collective actions throughout the district.
In 2022, Illinois passed the Consumer Legal Funding Act (S.B. 1099), which implemented several statutory provisions regulating aspects of third-party litigation funding, but it doesn’t address disclosure of these arrangements or information about the existence of a funding arrangement to defendants as part of claim litigation.
Litigation funding not only drives up costs – it introduces motives beyond achieving just results to the judicial process. This is why the practice was once widely prohibited in the United States. As these bans have been eroded in recent decades, litigation funding has grown, spread, and morphed into forms that can cost plaintiffs more in interest than they might otherwise gain in a settlement. In fact, it can encourage lengthier litigation to the detriment of all involved – except for the funders and the plaintiff attorneys.Top of Form
“Litigation funding is a multi-billion-dollar industry that for years has driven up the length and cost of civil cases,” said Neil Alldredge, president and chief executive officer of NAMIC. “While there is much more that needs to be done to address this issue, this law represents important progress.”
Revealing litigation funding from a third party before commencement of a lawsuit “will help thwart opportunistic investors from promoting return on investment over client interests and siphoning value from clients away from policyholders, claimants and insurers,” Alldredge said.
By Matthew Scarfone, Esq., Triple-I blog contributor, and shareholder at Colodny Fass
Florida presents property insurers with a unique set of factors that affect the availability and affordability of insurance coverage. The state boasts the third-largest population in America while simultaneously enduring a higher-than-average volume of natural disasters. It’s fair to say that operating a residential insurance company in the Sunshine State isn’t for the faint of heart.
What’s behind the mounting catastrophe in the Florida legal system?
But as damaging as the hurricanes can be, there is a man-made disaster that has contributed significantly to destabilizing the market to concerning levels: legal system abuse. In practice, some people are misusing tools of the justice system to manipulate outcomes and obtain windfalls. Insurance carriers have paid a heavy price in recent years due to the increased abuse of one-way attorney fees, bad faith claims, and other unsustainable litigation trends.
Exploitation of one-way attorney fees and bad faith law has been especially prevalent. Until recently, if a policyholder or third party sued an insurer and obtained any monetary award, they were entitled to recover all attorney fees incurred in the litigation. This practice may have incentivized people to dispute insurance claims, regardless of whether they were justified.
The problem was further exacerbated by the abuse of assignment of benefits (AOB) agreements, which created an opportunity for contractors to inflate costs. As a result, a modest homeowners insurance claim could lead to multiple lawsuits by different assignees, each asserting a separate claim for attorney fees. Manipulating this loophole encouraged excessive claims and unreasonable demands, forcing insurers to choose between paying the inflated bill or risking a lengthy trial where the attorney fees alone could exceed the claim amount. On top of that, courts have had broad discretion to apply fee multipliers and can award 1.5-3 times the reasonable attorney fee.
Cases involving allegations of bad faith further compound an insurer’s exposure because these cases can be costly to defend and involve intrusive discovery, amorphous damages, and unpredictable juries. Bad faith cases are not ripe (i.e., ready to potentially warrant judicial intervention) until there has been a final determination regarding coverage and the damage amount. Therefore, insurers regularly face the prospect of defending a bad faith case even after resolving the underlying dispute.
Florida’s courts did not help matters by ruling that appraisal awards—tools designed to help resolve disputes—could lay the procedural groundwork for bad faith actions. In other words, after resolving a claim through appraisal, insurers could still be left to defend a lawsuit for bad faith. Some attorneys used this caselaw as a playbook to fast-track claims into bad faith litigation by misusing the appraisal process.
The problem looks even worse when you quantify it. According to the Florida Office of Insurance Regulation (OIR), as of 2020, despite Florida only accounting for 9% of all homeowners insurance claims in the country, it accounted for 79% of all homeowner insurance litigation nationwide. Additionally, over the last decade, only 8% of the $51 billion paid out by insurers went to claimants, yet plaintiffs’ attorneys took home 71%. Meanwhile, eleven Florida property insurers fell into liquidation since 2017—five of those occurring last year alone.
Legislators recognized need for urgent action to help curb costs of insurance claims.
The Florida Legislature has responded to the growing crisis by passing multiple pieces of significant insurance reform, primarily tackling the problems with AOBs, bad faith claims, and excessive fees. For example, the new laws eliminate one-way attorney fees in property insurance litigation, forbids using appraisal awards to file a bad faith lawsuit, and prohibits vendors from taking AOBs under new policies. Despite criticism from the plaintiffs’ bar, these reforms are not all “one-sided.” Recently passed legislation also ensures transparency and efficiency in the claims process and encourages a more efficient and less costly alternative to litigation.
While it’s too soon to know exactly how recent reforms will improve the state’s insurance market, there is a sense of hope that these measures will decrease the volume of property insurance litigation and foster a more viable and stable residential insurance market that enables greater consumer access to affordable coverage.
It may take time for these reforms to have a measurable impact on Florida’s property insurance market. Still, insurers and policyholders alike should be optimistic that the market is headed in a more sustainable direction.
Lightning is a more complex peril than it is often given credit for being, according to Tim Harger, executive director of the Lightning Protection Institute (LPI). In a recent interview with Triple-I CEO Sean Kevelighan, Harger discussed the importance of preparing for and preventing damage from this risk, which is second only to flooding when it comes to costly weather events.
People typically think about fire damage when they think about lightning. But Harger said, “Beyond the fire is the destruction of electrical wires and infrastructure that supports everything we do to communicate and to conduct business.”
If lighting strikes any of these structures, he said, “Activity is stopped.”
Harger cited the case of an East Coast furniture manufacturer that was struck.
“That one lightning strike cost them just over a million dollars in damage,” he said. “Yes, there was the typical fire that caused structural damage, but what was impacted on the ‘inside’ was even more costly. They had damaged inventory, production downtime, and loss of revenue during the repairs.”
Investment in a lightning protection system could have saved this business owner – and his insurer – the million dollars lost and prevented business interruption. Nearly $1 billion in lightning claims was paid out in 2018 to almost 78,000 policy holders, according to LPI.
“Lightning strikes about a 100 times every second,” Harger said. “When installed properly, lightning protection systems are scientifically proven to mitigate the risks of a lightning strike.”
A lightning protection system consists of six parts:
Strike termination device,
Conductors,
Grounding,
Surge protection,
Potential equalization, and
Inspection.
Architects and engineers play an important role in specifying and designing these systems, and installation is completed by certified lightning protection contractors. When properly installed lightning is intercepted by the strike termination device and energy is routed through the conductors and into the grounding system, preventing impact to the structure or electrical infrastructure.
“Businesses already install fire alarms and sprinkler systems to mitigate greater risks of fires,” Harger said. “Lightning protection systems prevent a lightning strike from causing any damage. So the investment in a lightning protection system prevents personal injury and the costly impact of even one strike.”
Several insurers offer premium discounts for policyholders who invest in lightning protection systems. LPI invites insurance providers who are interested in sharing their customer incentives to contact them at lpi@lightning.org.
Michigan’s no-fault system reform law, effective in 2020, has led to personal auto insurers paying out fewer claims and many drivers paying less in premiums, according to recent research by two Triple-I nonresident scholars.
The study, No Fault Auto Insurance Reform in Michigan: An Initial Assessment, co-authored by Patricia Born, Ph.D. of Florida State University and Robert Klein, Ph.D. of Temple University, observed substantial decreases in average liability premiums and personal injury protection (PIP) loss costs in 2022. PIP covers the treatment of injuries to the driver and passengers of the policyholder’s car in a no-fault auto insurance system.
“Our initial evaluation of the likely effects of the reform legislation indicates that it is significantly reducing the costs of auto insurance for many Michigan drivers,” the paper states. “How much these reductions will be for any given driver will depend on the PIP option they choose, among other factors.”
The average Michigan policyholder paid $2,611 annually for personal auto insurance coverage in 2019 and $2,133 in 2022, an 18 percent decrease, according to Insure.com. Before the state’s no-fault auto insurance system reform law took effect in July 2020, Michigan regularly ranked as one of the costliest states in the U.S. for personal auto insurance coverage.
The 2020 reform law’s enactment allowed for:
Reducing auto insurer payouts of high PIP medical benefits;
Instituting medical cost controls;
Broadening the state’s authority to regulate personal auto insurance rate filings;
Creating a Fraud Investigation Unit within the Department of Insurance and Financial Services; and
Restricting auto insurer use of “non-driving” rating factors (e.g., credit-based insurance scores).
Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy. Insurers also were severely constrained in controlling the medical costs arising from PIP claims. This cost contributed to more than one in four drivers (26 percent) on Michigan’s roadways being uninsured in 2019, the Insurance Research Council (IRC) estimated, nearly twice the national average (13 percent). Michigan is one of 12 no-fault states in the U.S. These systems allow policyholders to file claims with their own insurer after an accident, regardless of whom caused the accident. No-fault states restrict lawsuits to serious cases and promote faster claim payouts.
The Louisiana property insurance market has been deteriorating since the state was hit by a record level of hurricane activity during the 2020/2021 seasons, Triple-I says in a new Issues Brief on the state’s insurance crisis. Twelve insurers that write homeowners coverage in Louisiana were declared insolvent between July 2021 and February 2023.
“While similarities exist between the situations in these two hurricane-prone states, the underlying causes of their insurance woes are different in important ways,” said Mark Friedlander, Triple-I’s director of corporate communications. “Florida’s problems are largely rooted in decades of litigation abuse and fraud, whereas Louisiana’s troubles have had more to do with insurers being undercapitalized and not having enough reinsurance to withstand the claims incurred during the record-setting hurricane seasons of 2020 and 2021.”
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). The growing volume of losses also drove a dozen insurers to voluntarily withdraw from the market and more than 50 to stop writing new business in hurricane-prone parishes.
This is not to say legal system abuse is absent as a factor in the Louisiana’s crisis – quite the opposite, as highlighted by Insurance Commissioner Jim Donelon’s cease-and-desist order, issued in February, against a Houston-based law firm. According to Donelon, the firm filed more than 1,500 hurricane claim lawsuits in Louisiana over the span of three months last year.
“The size and scope of McClenny, Moseley & Associates’ illegal insurance scheme is like nothing I’ve seen before,” Donelon said. “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.”
McClenny Moseley has since been suspended from practice in Louisiana’s Western District federal court over its work on Hurricane Laura insurance cases.
A regular on the American Tort Reform Foundation’s “Judicial Hellholes” list, Louisiana’s “onerous bad faith laws contribute significantly to inflated claims payments and awards,” according to a joint paper published by the American Property Casualty Insurance Association (APCIA), the Reinsurance Association of America (RAA), and the Association of Bermuda Insurers and Reinsurers (ABIR).
“Insurers who fail to pay claims or make a written offer to settle within 30 days of proof of loss may face penalties of up to 50 percent of the amount due, even for purely technical violations,” the paper notes. “To avoid incurring these massive penalties, which are meted out pursuant to highly subjective standards of conduct, insurers sometimes feel compelled to pay more than the actual value of claims as the lesser of two evils.”
As a result of these converging contributors, Louisiana Citizens Property Insurance Corp. – the state-run insurer of last resort – has grown from 35,000 to 128,000 policyholders over the past two years, according to the Louisiana Department of Insurance.
A maturing Internet of Things (IoT) calls for measures to increase cybersecurity at the national, international, and private sector levels, according to a recent report by the White House.
The new National Cybersecurity Strategy comes as cyberattacks continue to wreak havoc across the world, causing billions of dollars in damages. Furthermore, autocratic states such as China, Russia, and North Korea have ramped up aggressive cyber abilities to disrupt other nations’ interests and “broadly accepted international norms.”
Key Takeaways
The White House report aims to “build and enhance collaboration” for cybersecurity around five main tenets:
Defending critical infrastructure, involving mandatory requirements for cybersecurity, as the marketplace insufficiently rewards and even hinders who invest in measures to protect against cyberattacks.
Disrupting and dismantling threat actors, including diplomatic, military, and law enforcement measures to negate these attacks.
Shaping market forces to drive security and resilience through driving adoption of best practices in cybersecurity and resilience, utilizing the market to enhance capabilities.
Investing in a resilient future by engaging strategic public interests involving innovation, R&D, and education to ensure U.S. leadership in these areas.
Forging international partnerships to pursue shared goals through working with international institutions to identify and progress state behavior in cyberspace, including building peacetime norms and confidence-building measures through the U.N.
Reimaging collaboration as partnerships and investment
According to the report, adhering to these principles require two fundamental changes in how the U.S. “allocates roles, responsibilities, and resources in cyberspace.”
The first shift involves rebalancing the responsibility to defend cyberspace. The report states that end users are often tasked with far too much responsibility for lowering cyber risks. With small businesses, state and local governments possessing limited resources, a single individual’s failure to judge these risks can have national security consequences—which must be rectified.
With this in mind, the report states that the government must protect its systems, while safeguarding private entities, particularly critical infrastructure. Further, “core government functions” like diplomacy, intelligence, imposing economics costs, law enforcement, and interrupting cyber threats are all essential to counteracting the threat of cyberattacks.
The second shift involves realigning incentives to favor long-term investments. This entails defending current systems, while simultaneously advancing a digital ecosystem that is more defensible and resilient. This includes rewarding security and resilience with market forces and public programs, embracing designed security and resilience, and investing in research and development for cybersecurity in a strategic manner.
While the implementation of these strategies is complex, the National Security Council (NSC), alongside the Office of Management and Budget (OMB), will lead efforts to implement a cohesive strategy, reviewing existing policy and assessing the need for new policy. The Federal Government will also use a data-driven approach to evaluate its efficacy, a much-needed move as cyberattacks continue to threaten the safety and economy of nations around the world.
Rising cybercrimes create risks for insurers and consumers
In 2022, 1,802 data compromises affected approximately 422 million people, according to a report by the Identity Theft Resource Center. Although data compromises remained even from 2021, the number of overall breaches has continued to rise. Additionally, losses continue to rise from cybercrime complaints, resulting in 10.3 billion in damages in 2022, according to the Internet Crime Complaint Center.
As these issues present major problems for consumers, the global cyber insurance market continues to grow, with an estimated reach of over 91.22 billion by 2031. This represents a compound annual growth rate of 23.78 percent from 2023 to 2031.
This market poses challenges and opportunities for insurers, as more cyber security professionals are needed to examine and prevent these threats. These risks can be addressed through training in cyber intelligence – but it will take significant investment to achieve this market’s expansion.
At the end of 2022, the U.S. Government Accountability Office (GAO) released a report, Third-Party Litigation Financing: Market Characteristics, Data and Trends. Defining third-party litigation financing or funding (TPLF) as “an arrangement in which a funder who is not a party to the lawsuit agrees to help fund it,” the investigative arm of Congress looked at the global multibillion-dollar industry, which is raising concerns among insurers and some lawmakers.
The GAO findings summarize emerging trends, challenges for market participants, and the regulatory landscape, primarily focusing on the years between 2017 and 2021.
Why a regulatory lens on TPLF is important
The agency conducted this research to study gaps in public information about the industry’s practices and examine transparency and disclosure concerns. Three Republican Congress members – Sen. Chuck Grassley (IA), Rep. Andy Barr (KY), and Rep. Darrell Issa (CA) — led the call for this undertaking.
However, as GAO exists to serve the entire Congress, it is expected to be independent and nonpartisan in its work. While insurers, TPLF insiders, and other stakeholders, including Triple-I, have researched the industry (to the extent that research on such a secretive industry is possible), the legislative-based agency is well positioned to apply a regulatory perspective.
Example of Third-Party Litigation Financing for Plaintiffs
The report methodology involved several components, many of which other researchers have applied, such as analysis of publicly available industry data, reviews of existing scholarship, legislation, and court rules. GAO probed further by convening a roundtable of 12 experts “selected to represent a mix of reviews and professional fields, among other factors,” and interviewing litigation funders and industry stakeholders. Nonetheless, like researchers before them, GAO faced a lack of public data on the industry.
Third-party litigation funding practices differ between the consumer and the commercial markets. Comparatively smaller loan amounts are at play for consumer cases. The types of clients, use of funds, and financial arrangements can also vary, even within each market.
While most published discussions of TPLF center on TPLF going to plaintiffs, as this appears from public data to be the norm, GAO findings indicate: 1) funders may finance defendants in certain scenarios and 2) lawyers may use TPLF to support their work for defense and plaintiff clients.
How the lack of transparency in TPLF can create risks
Overall, TPLF is categorized as a non-recourse loan because if the funded party loses the lawsuit or does not receive a monetary settlement, the loan does not have to be repaid. If the financed party wins the case or receives a monetary settlement, the profit comes from a relatively high interest payment or some agreed value above the original loan. Thus, the financial strategy boils down to someone gambling on the outcome of a claim or lawsuit with the expressed intention of making a hefty profit.
In some deals, these returns can soar as high as 220%–depending on the financial arrangements–with most reporting placing the average rates at 25-30 percent (versus average S&P 500 return since 1957 of 10.15 percent). The New Times documented that the TPLF industry is reaping as much as 33 percent from some of the most vulnerable in society, wrongly imprisoned people.
Usually, this speculative investor has no relationship to the civil litigation and, therefore, would not otherwise be involved with the case. However, the court and the opposing party of the lawsuit are typically unaware of the investment or even the existence of such an arrangement. On the other hand, as the GAO report affirms, knowledge about the defendant’s insurance may be one of the primary reasons third-party financers decide to invest in the lawsuit. This imbalance in communication and the overall lack of transparency spark worries for TPLF critics. GAO gathered information that highlighted some potential concerns.
Funded claimants may hold out for larger settlements simply because the funders’ fee (usually the loan repayment, plus high interest) erodes the claimant’s share of the settlement. Attorneys receiving TPLF may be more willing to draw out litigation further than they would have – perhaps in dedication to a weak cause or a desire to try out novel legal tactics – if they had to carry their own expenses.
Regardless, typically neither the court, the defendant, nor the defendant’s insurer would be aware of the factors behind such costly delays, so they would be unable to respond proactively. However, insurance consumers would ultimately pay the price via higher rates or no access to affordable insurance if an insurer leaves the local market.
As the report acknowledges, a lack of transparency can lead to other issues, too. If the court does not know about a TPLF arrangement, potential conflicts of interest cannot be flagged and monitored. Some critics calling for transparency have cited potential national security risks, such as the possibility of funders backed by foreign governments using the funding relationship to strategically impact litigation outcomes or co-opting the discovery process for access to intellectual property information that would otherwise be best kept away from their eyes for national security reasons.
Calls for TPLF Legislation
GAO findings from its comparative review of international markets reveal that the industry operates globally, essentially without much regulation. The report points out that while TPLF is not specifically regulated under U.S. federal law, some aspects of the industry and funder operations may fall under the purview of the SEC, particularly if funders have registered securities on a national securities exchange. Some states have passed laws regulating interest charged to consumers, and, in rarer instances, requiring a level of TPLF disclosure in prescribed circumstances.
Active, visible calls from elected officials for regulatory actions toward transparency come mostly from Republicans, but, nonetheless, from various levels of government. Sen. Grassley and Rep. Issa have tried to introduce legislation, The Litigation Funding Transparency Act of 2021, requiring mandatory disclosure of funding agreements in federal class action lawsuits and in federal multidistrict litigation proceedings. In December of 2022, Georgia Attorney General Chris Carr spearheaded a coalition of 14 state attorney generals that issued a written call to action to the Department of Justice and Attorney General Merrick Garland.
“By funding lawsuits that target specific sectors or businesses, foreign adversaries could weaponize our courts to effectively undermine our nation’s interests,” Carr said.
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.
