Experts: High auto insurance rates are due to increases in claim severity

(The Center Square) — Inflationary pressures on the auto insurance industry has been hitting the wallets of Louisiana residents hard.

According to testimony from insurance policymakers at a House Committee on Insurance hearing on Friday, the increased rates follow a trend of increased severity of claims. They say as costs for an insurance company increase, premiums for policyholders also rise.

"In terms of claims costs, we saw a huge surge of inflationary pressure, that is driving claims costs upwards," said Robert Hartwig, director of the Risk and Uncertainty Management Center. "The costs are elevated and remain elevated, and that is what is driving a lot of the rate increases today."

"There has been a modest decrease in the frequency of claims filed, and an enormous surge in severity." Hartwig said "The costs of those claims has absolutely swamped the frequency of claims."

A recent survey from FINN, a car subscription company, ranked Louisiana as the 11th highest state for insurance premiums, at $2,546.

A variety of factors contribute to the high cost, some of which are exclusive to Louisiana, some of which are not.

According to Hartwig's testimony, driver behaviors have changed in the aftermath of the pandemic, citing an increase of driving under the influence, without seatbelts or speeding. Parts have also gotten significantly more expensive since the pandemic. Hurricanes, hail and wildfires were also cited as contributors to increased costs.

"The highways in the United States have become deadlier than at any time in the last 15 years," Hartwig said "That's obviously a part of what's driving claim costs."

"When we look at Louisiana, deaths per 100 million vehicle miles driven, you see that Louisiana is the eighth deadliest state," Hartwig continued.

"The average increase across all the state's auto insurers was just over 12% this year. For the top 5 companies by market share, the average increase was much higher, at 20%," Louisiana Commissioner of Insurance Jim Donelon told the Times-Picayune .

Not only are Louisianans more costly to cover as individuals, they also seek litigation for their accidents at higher rates, leading to increased costs for insurance companies which eventually lead to an increase in rates.

The high rates of litigation are attributable to the large number of uninsured individuals, or individuals with minimal coverage, according to FINN.

"Like Florida, Louisiana also has a large proportion of uninsured drivers at slightly more than 10%, pushing up premiums," FINN said in the survey. "Even drivers with insurance often only have minimum coverage, which won't protect them from anything more than minor accidents."

Rep. Michael Johnson, R-East Pineville, wonders if claim handlers have incentivized policyholders to turn to lawyers when insurance companies cannot make payouts which cover the full repair cost at the shop.

"Part of what were trying to do is make insurance more affordable. One of the things were focusing on is trying to reduce the amount of claims being made" Johnson said. "My experience is that, by the way these claims are being handled, the people handling them are in fact driving up rates."

One witness, the owner of a repair shop, testified that insurance companies often underestimate the cost of certain repairs.

"If were looking to control costs, you allow the shop to write the estimate," said Wayne Wimberley, owner of Highway 44 Paint, Body and Towing in Gonzales. "You create the integrity, and the network of the business, create the relationship with the insurance and the repair businesses, so that he knows that when I say 'it needs a fender', he knows I'm telling the truth."