Opinion: The Insurance Crisis -- You Are Not Alone
By David M. Golden
I>Director of Commercial Lines
ational Association of Independent Insurers
American Trucking Associations’ report on the state of the insurance market — and a list of recommended solutions to the problem of spiraling premiums — added another voice to business’s outcry for meaningful tort reform, a remedy the insurance industry has been advocating for years.ATA’s detailed and comprehensive “Report of the Insurance Task Force,” which incorporated input from motor carriers, insurers, brokers and state regulators, concluded that increases of as much as 500% in auto insurance liability policy pricing are directly driven by the dramatic increase in lawsuits against motor carriers.
The report, released in January, was spurred by the fact that in spite of safer operations, trucking companies were seeing primary insurance rates increase an average of 32% in 2001 and umbrella rates increasing 74%. Then rates increased 120% after Sept 11. The cost was even higher for hazardous materials haulers, with average rate increases of 159%.
Believe it or not, the insurance industry is just as unhappy with the situation. For years, a fiercely competitive marketplace and a strong economy produced substantial investment income for insurers and resulted in a price war that kept premiums low for most business consumers. Insurance companies offered low trucking premiums — sometimes as low as rates for private autos — to preserve market share and attract new business.
The tide began to turn in 2000 as claim costs began to exceed premium and investment gains and the situation was exacerbated by the dramatic reduction in reinsurance capacity after Sept. 11.
But simply increasing premiums — or worse, keeping them artificially low — doesn’t address the underlying cost-drivers, in particular, the impact of a flood of lawsuits and outlandish jury awards.
Reports of premium increases surely don’t come as a surprise to motor carriers. The ATA report mentions that insurance premiums constituted nearly 2.5% of total trucking company expenses in 2000, with liability insurance alone almost 1.5% of all carrier expenses.
What truckers might not know, however, is that they’re not alone. An April analysis of the U.S. tort liability system by the Council of Economic Advisers lays it out in dollars and cents: The U.S. tort system is the most expensive of all industrialized nations, directly costing American consumers an estimated $180 billion, or 1.8% of the gross domestic product. Ironically, only 20% of these dollars actually go to claimants for economic damages such as lost wages or medical expenses. More than half goes to administrative expenses and legal fees.
The tort system has grown so egregious that builders, manufacturers and the medical community — industries that have been even harder hit by insurance costs than truckers — are publicly putting the blame where it really belongs, on an out-of-control legal system fueled by unfettered lawsuits.
ATA’s finding that tort reform is the primary legislative solution to bring insurance rate relief to the trucking industry echoes similar conclusions by other industries.
This groundswell of support might actually help turn the tide in favor of tort reform — a move that lawmakers have resisted in the past, thanks in large part to the pervasive influence of the trial bar. With such a large segment of the economy clamoring for relief, legislators might finally have to sit up and take notice. The post-Sept. 11 willingness to consider limited liability reform regarding terrorist-related acts, and the September 11 Victim Compensation Fund, could also make the time right for tort reform.
However, in order to make any legislation work, lawmakers must incorporate remedies that will directly address the problem. The ATA study specifically points to the American Tort Reform Association’s umbrella of tort reform efforts, which are state-by-state attempts to introduce tort reform legislation.
Whether on a federal or state level, meaningful tort reform should incorporate remedies such as adopting a collateral source rule, which would take into account whether a plaintiff is already receiving financial support; establishing caps on noneconomic damages, which limits “pain and suffering” judgments; and permitting periodic payments of future damages to ease the financial strain on insurers with large settlements or judgments.
The trucking industry can be a powerful force in paving the way for tort reform. The motor carrier business, like other affected industries, should recognize there may never be a better time to effect legislative change and encourage its members to take an active role in the judicial elections that are taking place in many states right now, including Texas, Ohio, California and Illinois. If state supreme court changes take place in these bellwether regions, it could have a significant impact that will be felt across the country’s judicial system.
Fairness can be restored to our judicial system if American businesses and consumers understand that all of us — motor carriers, contractors, doctors, insurance companies and individuals — are hurt by rampant litigation. It’s in everyone’s best interest to push for real legislative and judicial changes.
NAII, a trade association based in suburban Chicago, has more than 700 member companies that write more than $98 billion annually in property and casualty premiums.
This story appeared in the Aug. 5 print edition of Transport Topics. Subscribe today.
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