The Cost of Settling Major Personal Injury Claims Is Increasing Insurance Premiums
Although cars are designed to be safer today than ever before, and countless statewide efforts in conjunction with national efforts are being implemented to make our roads safer, a rise in auto insurance claim damages is being seen, with serious injuries still regularly occurring. Greater numbers of severe or catastrophic insurance claims are primarily due to an increase in tort damages awarded in personal injury settlements. The trend is leading to a cumulative effect of increasing costs for insurers, and creating upward pressure on the cost of coverage for consumers.
Those figures are according to a recent study from the Insurance Research Council (IRC). Though the study indicates that claim frequency trends remain somewhat unclear, as enhanced safety features, increased driving, and other factors have combined to produce relatively small net changes, it does highlight a strong connection between personal injury claims and the cost of insurance policies. That connection is viewed by insurance company executives as a systemic problem indicating a need for tort law reform, lest their bottom lines continue to plummet.
The report, entitled Trends in Auto Injury Claims (2019 Edition), documents both countrywide and state auto injury trends using private passenger auto insurance claim data from national and state-level statistical reporting agencies. From 2008 through 2017, the average insurer payment per insured vehicle (considered loss costs by the insurance industry) grew 31% for bodily injury (BI) claims, and 26% for personal injury protection (PIP) no-fault claims. On an annualized basis, BI and PIP loss costs grew 3.1 and 2.6% per year. During the same period, inflation averaged below 2%.
Personal injury lawyers who regularly represent victims of motor vehicle accidents will almost certainly concur that a correlation between increased personal injury settlements and increased costs for insurance policies exists. However, why that correlation exists is a point of contention between personal injury lawyers and insurance executives.
From 2008-2017, bodily injury claim frequency in the U.S. fluctuated between 0.80 and 0.83 paid claims per 100 insured vehicles. Personal injury protection claim frequency fell insignificantly, from 1.31 to 1.27 claims per 100. Significant increases in claim frequency, however, were seen in specific states including Florida and Georgia, where BI claim frequency increased 33 and 24 percent, respectively. Florida also experienced a significant increase in PIP claim frequency (10%) from 2008-2017.
Virtually all of the nationwide growth in BI and PIP loss costs were due to rapid increases in the average cost of paid personal injury claims. From 2008-2017, BI and PIP claim severity increased 32 and 30 percent, respectively. States with significantly higher-than-average increases in BI claim severity included: Georgia (63%), Texas (61%), Louisiana (50%), and New York (48%). States with higher-than-average increases in PIP claim severity included: Michigan (60%), and New York (46%).
The insurance industry refers to the statistical trend of more and more plaintiffs claiming higher damages for personal injuries sustained during car accidents as ‘social inflation.’ The term is meant to signify what insurance executives view as a toxic tort culture, with more victims being represented by aggressive attorneys seeking the highest possible damages.
Whether or not ‘social inflation’ is a legitimate concept is debatable. But an increase in the number of personal injury claims combined with an increase in the amount of damages an attorney pursues on a client’s behalf clearly impacts the overall amount for which the insurance companies are responsible, and said amount has trended higher in recent years. That cost, which is taken on by the insurance companies, must be covered in some way, and currently that translates into higher premiums for consumers.
Additionally, the study shows that the total cost of each claim is rising steadily. It’s a scenario causing double concerns for the insurance industry that is, in turn, making driving more expensive for virtually everyone in the U.S.
Executives at some of the largest insurance companies — AIG, Travelers, Chubb, Ltd., etc. — continue to express concern over the substantial monetary awards juries are issuing to plaintiffs. They argue that the ‘social inflation’ trend could lead to a $200 billion deficit in global reserves. Regarding professional liability cases, insurers have seen “a tripling of verdicts over $10 million throughout the past three years,” according to Rob Francis, who oversees healthcare underwriting at ProAssurance. Francis cited a recent $230 million settlement against a Baltimore hospital, considered to be the largest U.S. malpractice award to date.
Insurers point to what they perceive to be an overall negative social sentiment towards big business and corporations, where juries believe they can (and perhaps should) hold corporations to account. That’s a marked disparity from the beliefs insurers held ten years ago, when there was little concern over the intentions of juries.
“Ten years ago, the corporate community had a sense [that] they had won the tort reform battle,” said Robert Reville, CEO of Praedicat. “Since then, the price of insurance has declined dramatically. So, you have 10 years of declining prices, and 10 years of reserves being released, and insurers being deemed profitable. But over that time, they have accumulated exposure.”
An area currently causing great strife for insurers is bodily injury claims. According to data from reinsurance company Swiss Re, the median cost of the top 50 bodily injury claims in the U.S. rose from around $28 million in 2014 to over $54 million in 2018. “We’re seeing claims for opioids, talc, repetitive head injuries caused by sports, and even for loud noises in occupational settings,” said Reville, whose firm believes “the next opioids” will be antibiotics, diesel, and sugar.
Personal injury attorneys are quick to offer a counter argument, noting that, as corporations have seemingly become less concerned with consumer safety (with examples like gun manufacturers and e-cigarette companies), they have opened themselves up to higher, and therefore justified, settlements for tort damages. They also point to, in terms of bodily injury claims and car accidents, a savvy consumer/accident victim who is less likely to deal directly with insurance companies and instead opts to solicit legal representation from a personal injury lawyer, which typically leads to higher settlement amounts.
The insurance industry is always in a state of volatility, and the question of whether the current situation is indicative of more volatility than usual will become clearer in the coming months, particularly as more tort reform legislation is enacted. One thing is certain, however — insurance companies are wary of the future that lies ahead given that their reserves are depleted and personal injury settlements continue to increase.