American Property Casualty Insurance Association (APCIA) Vice President Bob Passmore stated that if lawmakers prioritize legislation addressing "legal system abuse," such as undisclosed third-party litigation funding, they could curb rising car insurance costs.
"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 Passmore, vice president of auto and claims policy. "Addressing legal system abuse auto cost drivers is key, including legislation that would put the brakes on phantom damages, inflated medical costs build-up, misleading billboard advertising, hidden third party litigation financing and un-moored non-economic damages. Deteriorating driving habits is also a significant driver of auto insurance costs, so policymakers should explore ways to improve safety on our roads, reduce speeding and distracted driving, as well as improving the condition of our roads to make them safer for all road users."
According to the latest Consumer Price Index from the Bureau of Labor Statistics, car insurance costs rose 1.2% in July and 18.6% over the year ending in July. In comparison, overall economic inflation was 0.2% in July and 2.9% over the last year.
Insurance Information Institute CEO Sean Kevelighan
| iii.org
Nationwide, the cost of car insurance has risen 46.2% since January 2020, according to the Wall Street Journal (WSJ). "Litigation abuse is also growing as plaintiff firms sue insurers for inflated damages," the WSJ editorial board said. Insurance providers have been leaving several states, such as California, due to "regulatory and legal uncertainty."
Third-party litigation funding (TPLF) involves third parties such as hedge funds or investment firms providing the upfront capital for lawsuits, and in exchange, they receive a percentage of any settlement or award from the case, according to the U.S. Chamber of Commerce Institute for Legal Reform (ILR). Without transparency and disclosure requirements, TPLF can influence the course of litigation and incentivize "unmeritorious" lawsuits. The practice is leading to higher costs for consumers because when companies face higher litigation costs due to the presence of TPLF, those companies are forced to raise prices for their goods and services.
The Insurance Information Institute (III) reported that "billboard attorneys" use large advertising campaigns to attract more clients by promising plaintiffs a "financial windfall," but having more plaintiffs on mass tort cases just serves to make the attorneys more money. III CEO Sean Kevelighan said, "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."
Passmore worked for Liberty Mutual Insurance from 1985 until he joined APCIA in 2007, according to LinkedIn. He is a board member for the Insurance Institute for Highway Safety.
