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 consequently raising auto
and commercial liability premiums. The report, based on data from 167 insurers, indicates that while the number of claims has decreased from 2020 to 2024, the proportion of those claims that were litigated increased by nearly a third, from 10% to 13%. This has resulted in a 38% rise in total payout amounts and a 45% increase in average payouts, far exceeding the U.S. inflation rate. Medical malpractice claims have seen the most substantial cost increase, with total payouts soaring by 140% during the same period. The report suggests that the rising severity of claims is influenced by legal involvement, and insurers are facing a dilemma on whether to settle or fight lawsuits in court.
Why It's Important?
The findings of the Alabama Department of Insurance report underscore the growing financial pressures on insurers due to increased litigation, which could lead to higher premiums for consumers. This trend highlights the broader implications for the insurance industry, as companies may need to adjust their strategies to manage rising costs associated with legal claims. The report also points to the potential need for tort reform in Alabama, as neighboring states like Florida and Georgia have implemented measures to curb lawsuits and jury verdicts, resulting in decreased insurance rates. Without similar reforms, Alabama may continue to see rising insurance costs, affecting both insurers and policyholders.
What's Next?
The report may prompt discussions among Alabama lawmakers about the need for tort reform to address the rising litigation costs. Although a tort-reform bill failed in 2024, there is hope that new legislation could be introduced in the future, especially with upcoming elections that may bring new leaders more inclined to tackle the issue. The insurance industry and legal reform advocates will likely continue to monitor the situation and push for changes that could stabilize or reduce liability insurance premiums in the state.
