Market volatility may lead to insurance premiums increases, blaming injury victims, and calls for another round of “tort reform”
The downturn in world financial markets bodes ill for people injured by the negligence of others, as insurance companies are likely to ramp up new calls for additional "tort reform" in order to make up for their investment losses. We have seen it several times before.
In the 1970’s, 1980’s and 1990’s, insurance companies raised premiums to cover their investment losses. Of course rather than admitting that their losses were due to poor investment performance, they blamed the injury victims and evil trial lawyers for filing a mountain of "frivolous" lawsuits, and supported politicians who went along with their campaign for "tort reform." Of course, premiums were never significantly reduced in response to "tort reform" legislation. Premiums come down in response to two things — laws requiring financial disclosure by insurers, and financial market conditions.
Recently the stock market has fallen by about 15%. This is the same stock market in which the insurance companies invest their insureds’ premiums. No doubt, some insurance companies were invested in subprime mortgages.There is much talk of a coming recession. Interest rates are falling. The lower interest rate affects the bond market and other interest paying investments in which the insurance companies invest their insureds’ premiums.
If the market does not recover, we can expect increased premiums in 2008 and 2009 to cover the insurance companies’ investment losses. As in the past, distressed financial markets will likely lead to campaigns for "tort reform," as insurers try to mask the real reasons that they are raising premiums for policyholders.
State Insurance Commissioners, including Commissioner John Oxendine in Georgia, should investigate the investments of insurance companies when they seek premium increases during 2008 and 2009. The investigation should involve the insurance companies’ investments in the subprime, stock and bond markets. If the need for sought premium increases is the result of lost premium investments, then any increase in premiums should be limited to the rate of inflation.
The public should not be forced to pay increased premiums to cover the investment losses of insurance companies. Insurance companies should cover their own investment losses, since they expected to harvest any profit from their investments. No one is covering my investment losses, or those of the rest of the investing public.
I would be wonderful if our legislators would see through the recurring pattern, but I’m afraid too many of them are just programmed to believe whatever the insurance industry and its lobbyists tell them, and to reject any message from consumer advocates.