Tort Reform & Insurance Rates

The insurance industry doesn’t dispute that rates could be lowered. They’ve admitted time and again that premiums costs could come down – but not through any sacrifice on their part.

For more than twenty years, the insurance industry has attacked our civil justice system as the real culprit behind rising rates. In the 1980s, America suffered a “liability insurance crisis.” Premiums skyrocketed, coverage was reduced, and policies were cancelled. Instead of owning up to their role in the crisis, the insurance industry blamed the legal community.

The poor insurance companies cried that they were being victimized by greedy lawyers and frivolous lawsuits. Jackpot justice was depleting their profits and forcing them to increase premium rates and deny coverage just to stay afloat. They suggested a series of tort reforms that would limit plaintiffs’ ability to sue them in court, which would enable them to lower rates for everyone.

Lawmakers in several states were pressured – not just by the insurance industry’s well-funded lobbyists, but also by angry constituents who believed the insurers’ propaganda. Under pressure, legislators passed a series of tort reform laws to limit victims’ access to our courts. Those reforms came in many forms, from filing requirements to damage caps.

Unfortunately, data now shows that we were hoodwinked. We surrendered our constitutional rights, but didn’t get rate relief in return. Instead, we emboldened an already out-of-control industry that now found itself granted legal immunity.

The Center for Justice & Democracy published “Premium Deceit: The Failure of ‘Tort Reform’ to Cut Insurance Prices” in 1999. In the first study of its kind, researchers analyzed insurance rates in every state from 1985 through 1998 to see if tort reforms succeeded in reducing insurance costs. What the study uncovered was that states that enacted tort reforms had rates similar to those that hadn’t; therefore, tort reforms have had no effect on insurance premiums.

Despite industry claims, tort reform has absolutely nothing to do with insurance rates. The liability crisis of the 1980s has been proven to be a “self-inflicted phenomenon caused by the mismanaged underwriting practices of the industry itself.” As explained by researchers J. Robert Hunter and Joanne Doroshow:

The insurance company’s profits and underwriting practices are cyclical, often characterized by sharp ups and downs. … During years of high interest rates and/or excellent insurer profits, insurance companies engage in fierce competition for premium dollars to invest for maximum return. Insurers lower prices and insure very poor risks just to get the premium dollars. … By 1985, when interest rates had dropped and investment income had decreased accordingly, the industry responded by sharply increasing premiums and reducing availability of coverage, creating a ‘liability insurance crisis.’

In recapping the self-inflicted insurance crisis of the 80’s, the facts are this:

  • The insurance industry acted irresponsibly, and to combat their losses, raised premiums and cut coverage
  • Instead of taking credit for their mistakes, insurers pinned the crisis on the civil justice system
  • Lawmakers bowed to lobbyist pressure and enacted a series of tort reforms
  • insurers, safely out of their cyclical drop, still refused to lower rates

Needless to say, we’ve all been had by the powerful insurance lobby. Some lawmakers are admitting to buyer’s remorse, with one Connecticut representative saying, “We have been disappointed by the response of the insurance industry. The reforms we passed should have led to rate reductions because we made it more difficult to recover, or set limits on recovery. But this hasn’t happened.”

And it never will if we don’t implement insurance reform. Our lawmakers need to take the necessary steps to beat back an out-of-control industry. Our legislators are elected to be our advocates, not to look out for special interests. We need a consumer advocate who cares about the safety of our roadways, not the safety of insurers’ profits.