After Tort Reform Failure, Time for Real Insurance Reform
By: Michael DeLong, Research and Advocacy Associate and Eric Holl, Real Reform Louisiana
It’s no secret that auto insurance is expensive in Louisiana, to the point that it is very expensive for many families. The average auto insurance premium is $2,225 per year — 56% more than the national average. And so far, auto insurance premiums have climbed 2% this year.
Since Louisiana requires all drivers to have auto insurance, the state government has a responsibility to make sure this purchase is affordable. Commissioner Jim Donelon claimed that last year’s tort reform law, which was designed to lower the amount of money car accident victims could get from insurance companies through court judgments, would reduce auto insurance rates. Supporters of the bill claimed rates would go down by anywhere from 10–25%.
The opposite has happened-premiums increased. Now Donelon is trying to walk this back, claiming that his 25% estimate he gave lawmaker last year was a “pure guess” and not a guarantee. It turns out that this law is not going to make auto insurance more affordable, but was instead a big giveaway to the insurance industry and the business lobby.
Louisiana consumers deserve real action to reduce auto insurance premiums and make sure that ordinary people aren’t unfairly treated. Fortunately there are a number of real insurance reforms that could lower costs.
First, legislators should end the use of harmful non-driving related factors in auto insurance pricing. Insurers use these variables, including someone’s credit information, education, gender, and occupation to unfairly charge people more. They do this in the hopes of attracting wealthier consumers who will buy more insurance products, and to discourage poorer consumers.
Credit information is one of the most important factors that raises premiums. Data analyzed by Consumer Federation of America (CFA) shows that a Louisiana driver with a perfect driving record and excellent credit pays an average annual premium of $826 for basic auto coverage. But if that driver has the same perfect driving record but fair credit, their average premium rises to $1,200. And if they have poor credit, their average premium skyrockets to $1,709. Another study even found that Louisiana drivers with poor credit pay higher premiums than Louisiana drivers who have excellent credit but also a drunk driving conviction!
Also, drivers can have poor credit for all kinds of reasons beyond their control, such as a lack of opportunity, growing up poor, or having to help family members with expenses such as medical bills. And studies have found that found that several auto insurers charged substantially higher premiums — 10%, 20%, even 40% or more — to good drivers simply because they work in jobs that pay low wages or do not have college degrees.
Your auto insurance premium should be based on your driving record, not on your credit information or your job or whether you graduated from college.
Second, Louisiana should require auto insurers to refund the excess premiums they charged to drivers during the COVID-19 pandemic, when driving was dramatically reduced. Starting in spring 2020, the pandemic, its impacts, and various closures meant that people drove far less, resulting in a lot fewer crashes and insurance claims. But auto insurers still charged people premiums based on pre-pandemic information, when drivers were traveling a lot more, and so ended up with enormous profits.
While the insurers caved to public pressure and gave back some of that excess money, it was nowhere near enough. CFA’s analysis found that auto insurers collected $42 billion in excess premiums while providing only $13 billion in premium relief; in Louisiana, auto insurers should have returned an additional $558 million in premium relief to their policyholders. California, Michigan, New Jersey, and New Mexico required premium refunds during spring 2020, and California is requiring refunds for the duration of the pandemic. Louisiana drivers deserve no less and it is incredibly unjust for big corporations to greedily rake in profits while so many people are struggling. The Insurance Department should require insurers to provide $558 million in additional premium refunds to consumers.
Finally, Louisiana should require insurers to be more transparent about what they charge consumers, and investigate how the companies calculate insurance rates. Insurers fight tooth and nail against efforts to promote transparency and inform the public, claiming that it will harm competition and lead to higher costs. Don’t be fooled by this scaremongering! People need accurate and timely information to make better decisions about insurance, and more knowledge will benefit people instead of harming them. Additionally, shopping around by looking at different auto insurers and what premiums they charge is a good way to get better deals and save money.
If legislators are really serious about reducing auto insurance premiums and helping drivers, these reforms mark the place to start.
Auto insurance premium data in this article were acquired by Consumer Federation of America from Quadrant Information Services, LLC. The premiums are for a 35 year unmarried driver who has been licensed for 19 years and has no accidents, moving violations, or license suspensions. The driver has a high school diploma, rents their home, and drives a 2011 Honda Civic LX on a 12 mile commute, 5 days a week — meaning 12,000 miles driven annually. They also have Louisiana’s state minimum insurance coverage (15/30/25).
You can find this story on CFA’s website.