What's Happening?
A recent report from the Alabama Department of Insurance reveals a significant increase in claims litigation and large verdicts, which are driving up loss costs for insurers and leading to higher auto and commercial liability premiums. The report, based
on data from 167 insurers, shows that while the number of claims has decreased from 2020 to 2024, the proportion of litigated claims has risen from 10% to 13%. This has resulted in a 38% increase in total payout amounts and a 45% rise in average payouts, far exceeding the U.S. inflation rate. Medical malpractice claims have seen the most significant cost increase, with total payouts soaring by 140% from $9.6 million to $23.5 million. The report suggests that the increase in claims severity is influenced by legal involvement, and highlights the challenges insurers face in deciding whether to settle lawsuits or fight them in court.
Why It's Important?
The findings of the Alabama Department of Insurance report have significant implications for the insurance industry and policyholders in the state. The rising litigation and liability costs are likely to lead to higher insurance premiums, affecting both individuals and businesses. This trend could also impact the broader economy by increasing operational costs for companies that rely on insurance coverage. The report underscores the need for potential legal reforms to address the growing litigation costs, as seen in neighboring states like Florida and Georgia, which have enacted measures to curb lawsuits and jury verdicts. Without similar reforms, Alabama may continue to see rising insurance costs, which could deter business investment and economic growth.
What's Next?
The report's findings may prompt discussions among Alabama lawmakers about the need for tort reform to address the rising litigation costs. Although a previous bill aimed at regulating litigation financing and limiting vicarious liability for employers failed to pass, there is hope that future legislative sessions may introduce new measures. With upcoming elections, there may be an opportunity for new leaders to prioritize legal reforms. Additionally, insurers may need to adjust their strategies to manage the increasing costs associated with litigated claims, potentially leading to changes in how they assess and price risk.
