Think hurricanes, wildfires, and car accidents are the only reasons why the average American is worried about rising insurance premiums? Think again.
Some 64.3 percent of respondents say they’re concerned about excessive insurance lawsuits affecting their premiums, and 80.3 percent believing that lawsuits would increase their premiums even if they never filed a claim.
“Unfortunately, abuse of the legal system is not isolated to just a handful of states,” Big I Senior Vice President of Federal Government Affairs Nathan Riedel told The Independent via email. “It impacts all policyholders since risk is spread beyond state lines.”
The fear of that abuse impacting premiums is legitimate, according to a June survey from the Insurance Information Institute and Munich Reinsurance America. The survey found that excessive lawsuits drive up insurance premiums by $6,664 for a family of four.
Why do lawsuits have such a big impact on your insurance premiums?
One of the key contributors to the rise in insurance lawsuits over the past few years has been a practice known as “third-party litigation funding,” where investors pump money into lawsuits to get a cut of jury awards, Riedel said. The investors typically target litigants who don’t have the resources to wage – or win – a court battle with an insurer.
The extra money that legal teams get from investors can lengthen trials and encourage demands for larger awards, ultimately costing insurance companies more, Michael Coffey, founder partner at New York-based law firm Coffey Modica LLP, told The Independent by email.
“The infusion of capital enables claimants to withstand long legal battles, helps attorneys employ more sophisticated case strategies and technologies, including jury consultants and multimedia presentation software,” Coffey said, “and encourages plaintiffs to reject reasonable settlements and hold out for potentially higher jury awards because the trend has been for larger and larger jury awards in the current environment.”
The problem has become so prevalent that jury awards have tripled over the past decade, he said, a cost that trickles down to policyholders who may have never even filed a claim.
“Lawsuits in the United States lead to higher insurance premiums because they directly increase insurers’ costs through larger claim payouts, higher legal expenses, and longer settlement times,” Coffey said.
“Insurers then spread these added costs across all policyholders in the form of increased premiums, even affecting those who never file a claim themselves.”
What can insurance policyholders do to push back?
Several experts, who corresponded with The Independent, noted that regulation is a critical part of wrangling the unruly influence that excessive lawsuits have on the insurance industry. As a result, the most powerful asset consumers have is their voice, Riedel said.
“Consumers have more power than they realize,” he said. “A majority of Americans want government leaders to step in and address legal system abuse, and that kind of broad support can be a catalyst for real reform when consumers speak up.”
Additionally, consumers can also take several simple steps throughout the year to help fight back against excessive lawsuits, Joe Zdrilich, lead attorney at Georgia-based Zdrilich Injury Law, told The Independent by email. Those steps include:
- Document your claims well
- Choose insurers that have proven to handle claims quickly and fairly
- Conduct annual policy reviews with a licensed insurance agent
- Maintain a clean claims history
Zdrilich also recommends identifying coverages in your policies that may be underinsured, since boosting coverage can “lessen the chance disputes will turn into lawsuits – and thereby help manage longer-term premium rates.”