Senate debate schools lawmakers on insurance
Gov. Brian Kemp’s top priority—tort reform—passed the Senate on February 21, which represented its first major hurdle. Yet, in the process of debating the measure, it became apparent that not every lawmaker fully understands the issue or one of the industries most impacted by lawsuit abuse: insurance.
The tort reform package found in Senate Bill 68 should not be that controversial. It simply aims to curb lawsuit abuse in many ways, including limiting attorneys from cherry-picking more favorable judicial jurisdictions; permitting juries to consider seat belt usage in car accident cases; ending jury awards for phantom damages; and reforming premises liability so that companies are not unfairly held responsible for injuries that occur near their businesses.
Despite these being common sense steps forward, SB 68 faced stiff opposition—particularly from Sen. Nabilah Islam Parkes, D-Duluth, who introduced an amendment that would have fundamentally altered the bill. After she approached the Senate rostrum, she delivered a stinging speech—deriding SB 68 and promoting her amendment—and some of her statements should give readers pause.
Within her remarks, she exclaimed, “The justification for this bill—a so-called crisis that doesn’t even exist […] What we’re seeing here isn’t about fixing a broken system. It’s about creating a manufactured crisis to justify stripping away consumer protections and handing even more power to billion dollar insurance corporations.”
“Florida has passed tort reform legislation and their insurance rates have skyrocketed—auto insurance up 23 percent, home insurance up 177 percent, overall premiums up 37 percent,” she asserted. “My amendment does one simple thing. It ensures that insurance premiums will not rise any faster than the rate of inflation.”
To quote an old humorous insurance commercial in response to Islam Parkes, “That’s not how it works. That’s not how any of this works.” The truth is that there is a lot to unpack from her remarks, so bear with me.
To begin with, the crisis demanding tort reform is not manufactured; it truly exists. There have been a long series of nuclear verdicts—verdicts over $10 million—in Georgia, including $30 million, $70 million, $1.7 billion and $2.5 billion payouts based on questionable circumstances. This is just a sampling of Georgia’s experience with a dysfunctional tort system, and as companies face a deluge of suits—both legitimate and frivolous—their insurers are often stuck with the ever-increasing costs.
In order to remain in business, the increased burdens on insurers and businesses ultimately gets passed onto consumers. As a result, “Georgia residents pay a ‘tort tax’ of $1,213.80 and 123,900 jobs are lost each year,” reports the American Tort Reform Association. That’s a veritable crisis.
What’s more, it is insincere to compare Florida’s insurance market with Georgia’s. The two states face very different magnitudes and kinds of perils. That aside, tort reform did not cause insurance prices to skyrocket whatsoever. If anything, it helped stabilize the market.
In fact, Sen. Greg Dolezal, R-Cumming, rose during debate to debunk Islam Parke’s statements about tort reform’s impacts on Florida. “Three years after [Florida’s] tort reform bill passed, GEICO has filed for a 10.5 percent rate decrease […] Progressive auto has filed for an 8.1 percent rate decrease […] State Farm has filed for a 6% decrease,” Dolezal explained. After years of massive rate increases over all forms of Florida insurance, this year it stood at a miniscule “0.2 percent. [This] is the lowest insurance rate increase in the entire country,” Dolezal asserted.
There is debate over how tort reform will benefit Georgia’s insureds, and while I don’t have a crystal ball, it probably won’t impact insurance markets immediately. Over the long run, however, it should reduce the rate of premium increases.
Whatever the case, Islam Parke’s amendment was not built on a solid foundation, and the amendment itself was also problematic. It sought to tie insurance rate increases to no more than the inflation rate, even though rates are already highly regulated, but that’s not how insurance operates. Property and casualty insurance works by assessing policyholders’ likelihood of experiencing loss or damage and submitting a claim, and then insurers look to pool that risk with other policyholders. Based on that assessment, individuals’ are assigned their insurance premiums.
Inflation affects insurance rates to a degree, but matters entirely unrelated to it greatly influence insurance costs: namely risk. Increased risk can come in many forms, including storms that are becoming increasingly powerful, sudden crime spikes and so forth. A law that binds insurers hands so that actuaries and policy-writers cannot take into account issues that really matter imperils insurers’ well-being. States that have made similar attempts have seen their insurance markets decimated.
In the end, Islam Parkes’ amendment thankfully failed, but the debate exposed the reality that there is a fundamental misunderstanding about tort reform and insurance.