Don’t expect cheaper car insurance
20th July 2020 · 0 Comments
By Christopher Tidmore
Contributing Columnist
Why haven’t car insurance rates gone down significantly since the COVID-19 crisis began? And why have the legal reforms passed in the recently concluded legislative session had small positive impact on the wallets of Louisiana motorists?
There are a variety of reasons, according to former Louisiana Insurance Commissioner Jim Brown, and they include the fact that the Pelican State is one of the few in the Union which does not require the state’s insurance commissioner to pre-approve car insurance rate hikes. And, that is unlikely to change, as long as campaign contributions trump public anger.
As he explained in an interview with The Louisiana Weekly, “States around the country, insurance companies have to submit rate increases to the insurance department for prior approval.
California is a good example of that…Bloomberg Business Week reported recently that in California, auto insurance rates dropped significantly. Why? Because all rate increases have to be approved by the insurance department. So, when insurance companies are allowed to raise their own rates without pre-approval, like in Louisiana, rates go up. When pre-approval is required, rates are much less than in the Bayou State.”
“It used to be, when I was insurance commissioner,” Brown continued, “you used to have to come before the then Insurance Rating Commission, and justify why you wanted a rate increase…Insurance companies had to justify to before they could have a rate increase. They had to explain why they wanted higher premiums, and make their case. Because of that, we did not have as many increases.”
Don’t expect legal reforms to have much of an impact, Brown maintained. “It’s just a band-aid. It’s just a bad piece of legislation, in my opinion…Under the old law, any lawsuit with an award that can exceed $50,000 requires a jury trial. The problem for those who are injured and decide to sue is that they face drastically higher costs for jury trials, which have to be paid up front. Insurance company attorneys can beat them down with piles of motions all related to picking a jury.
Continuing Brown says, “Anderson Cooper on CNN has done a series of reports (all available online) about how the nation’s top auto insurance companies purposely drag out jury trials in an effort to wear down – financially and physically – those damaged in auto accidents. Many insurance departments turn the other way to this calculated effort by the insurance industry to lessen the amount they have to pay out.
“In a recent study by the U.S. Chamber of Commerce’s Institute of Legal Reform, [it] showed that Louisiana is within the national average when it comes to per capita cost of lawsuits involving auto accidents. So lawsuits are a minor part of why Louisiana has such high insurance rates. There are many other reasons why costs of auto insurance are so high in the Bayou State.
He went on to say, “State Farm has ballyhooed the fact that they’re dropping their rates 9.6 percent. But hundreds of thousands of drivers who the company insures are not driving that much because of COVID-19. So there are a much fewer number of claims and the company is still making a big profit.
“Hundreds of thousands of State Farm drivers haven’t had any accidents. We’re not driving as much. My car has stayed in the garage lately. I used to fill up every three days. I now fill up every two weeks, thanks to COVID. We should see greater decreases…The insurance commissioner has promised that rates would fall by 25 percent. I wouldn’t hold my breath.”
The reason, Brown explained, is money. “Campaign contributions. Money. It’s all driven by money. Insurance companies pour millions of dollars into legislative coffers, and all that campaign money talks, quite frankly. And the commissioner of insurance has taken several million dollars from the insurance companies. You ought to be prohibited from getting any money if you are regulating those companies…It’s money driven. That’s why the legislature doesn’t have the gumption to go out and do anything to lower those rates.”
Brown noted a Forbes magazine report listing Louisiana as a bottom-level state for infrastructure, “bad roads and poor safety.” Moreover, the Pelican State has one of the nation’s highest number of uninsured drivers. “Laws on the books require that cars of uninsured drivers be impounded; laws that are rarely enforced,” he said, recommending that the legislature could require proof of insurance for car owners when driver’s licenses are renewed, state income taxes are filed, or Medicaid is applied for, but the legislature will not act. It is in the financial interest of the underwriters for the La. House and Senate to do nothing.
“Catch my drift?” he joked. “There are a barrel of reasons why Louisiana leads the nation in high auto insurance rates. It’s going to take a concentrated effort by legislators, the governor and insurance officials to put a comprehensive program in place that will cause rates to go down. Looking for quick fixes by blaming lawyers, judges or any one group is disingenuous and will do little to address what has become a financial crisis for many drivers in Louisiana. So don’t count on any premium reduction soon. Much more needs to be done.”
This article originally published in the July 20, 2020 print edition of The Louisiana Weekly newspaper.
