More expensive car insurance claims in Louisiana, along with associated litigation and inflationary pressures, have pushed up costs for policyholders as the state emerged from the coronavirus pandemic, a business professor recently told a legislative panel.
Robert Hartwig, a clinical associate professor of finance at the University of South Carolina, testified on Sept 6 before the Louisiana House Committee on Insurance. The latest data shows a “massive explosion” in the severity of auto insurance claims in the state, though the frequency, or annual number, of such claims has been more subdued in the post-COVID 19 years, Hartwig said.
Insurance trends led insurers in the state to pay out $105.80 in claims for every $100 received in premiums by the end of 2022, he said. Multiple factors, including higher replacement-vehicle costs, higher vehicle-repair costs, natural disasters and post-pandemic erratic driver behavior, have also been putting upward pressure on policy costs, according to Hartwig.
“The good news is that from all the evidence, it would appear that the post-pandemic surge in inflation … is subsiding,” he said. “... We’re seeing a deceleration here.”
Even so, the auto insurance claims amounts remain at near-record highs in Louisiana, according to Hartwig. In addition, ads funded by plaintiff attorneys have reached a saturation point and are one of the causes of high auto insurance rates in the state, he said.
Louisiana tort costs as a percentage of gross domestic product are the highest among all 50 states, with the exception of Florida, according to Hartwig.
Benjamin Albright, the CEO of the Independent Insurance Agents & Brokers of Louisiana, expressed similar views on the state’s auto insurance market.
“Inflation increases the cost of auto insurance, and that has certainly been a driving factor for nationwide increases during the past few years of extremely high inflation in the wake of the COVID-19 pandemic,” Albright told the Louisiana Record in an email.
But he stressed that issues specific to Louisiana are also in play.
“The reason that Louisiana has higher auto insurance rates than surrounding states is that we claim bodily injury twice as often as the national average, litigate claims almost twice as often as the national average, and insurers lose money writing auto insurance (especially commercial auto) in our state because of those elevated losses,” Albright said.
The state Legislature must pass additional measures to make insurance costs more affordable, he said.
“Until we see significant legislative reforms to curb legal system abuse and excessive claims cost, I expect Louisianans will continue to pay more in auto insurance than people in other states," Albright said.
A 2023 report by the Germany-based car subscription provider FINN found that Louisianans pay on average $2,546 in annual auto insurance premiums, the second highest amount in the nation. The report indicated that the state had an elevated share of uninsured drivers and many drivers who purchase only the minimum amount of coverage.
“Drivers in the Pelican State are also highly litigious, with more vehicle-related lawsuits than any other region contributing to higher premiums,” the report states.
But the FINN report also pointed to trend lines that could help to ease auto insurance rates over the coming decade. By 2033, Louisiana will have the 11th highest average rate in the nation at $2,393 per year, based on current trends, the study found.