A recent report by the Insurance Information Institute (III) suggests that excessive litigation is driving up car insurance costs for consumers. Low-income and minority Californians are particularly affected by these rising prices.
The III states that plaintiff attorneys are employing strategies leading to an increased number of lawsuits, escalating litigation expenses and payouts. This trend is contributing to a rise in car insurance costs, intensifying economic burdens for consumers. "There are real costs behind what we all know and see plaguing our roads with promises of settlement dollars, as billboard attorneys are racking up fees, and consumers are found to be getting less and less. The price of insurance is the effect, not the cause of risk, and there must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture," said III CEO Sean Kevelighan.
According to a report from the American Tort Reform Association (ATRA), these excessive lawsuits are negatively impacting California’s economy and imposing an additional "tax" on California residents amounting to hundreds of dollars each year. The ATRA referenced a study conducted by John Dunham and Associates which found that enacting certain tort reforms could result in state residents and businesses saving over $22 billion in total. The ATRA noted that trial lawyers have recognized the profitability of California’s legal system, leading them to increase their legal advertising volume in the state by 115% between 2016 and 2020.
The Cato Institute, a think tank founded in San Francisco but now based in Washington D.C., highlighted that low-income and minority Californians have been disproportionately impacted by these rising costs. Michael Tanner, author of the report and former senior fellow at the Cato Institute, stated that before the pandemic struck, nearly 7 million California residents - over 17% of the state’s population - lived below the poverty line. This made California the state with the highest poverty rate in the country. Tanner said, "The pandemic and its associated economic fallout have only made poverty in California deeper, more widespread, and more painful." By December 2020, about one third of low-income Californians reported being unable to pay at least one monthly bill in the past year, while 43% had to resort to using a food bank and 35% missed a rent or mortgage payment.
The III, which has over 50 insurance companies as members according to its website, provides research reports, white papers, and other resources aimed at enhancing understanding of the insurance industry. The III is affiliated with The Institutes Risk and Insurance Knowledge Group.