AIA: La. Senate Committee Passes Destructive Insurance Bills

April 26, 2006

The Louisiana Senate Insurance Committee passed two bills that would be very destructive to the state if they became law, according to the American Insurance Association (AIA).

“One bill (SB 707) is a very expansive bad faith measure, that would allow third party claimants the right to sue insurance carriers, and the other bill (SB 693) would repeal the state’s flex rating law for personal lines policies. Both measures would be extremely destructive to the insurance market in Louisiana,” stated John Marlow, assistant vice president, AIA Southwest Region, in AIA’s announcement.

“Only a handful of states allow third party bad faith suits against insurers, all of which have seen a negative impact on insurance liability costs and premiums as a result. Third party bad faith doctrines encourage fraud and the filing of marginal and inflated claims. In the context of claims against business defendants, third party bad faith could have a debilitating impact on liability insurance consumers, jobs, and the overall economy,” Marlow explained.

“Several years ago California passed legislation reinstating the right of third party claimants to file bad faith lawsuits. Wisely, California voters subsequently overturned the bad faith legislation in a referendum challenge after realizing that bad faith doctrines have an extremely negative impact on the cost of insurance in particular, and on the state’s economy in general,” said Marlow.

“During the time third party bad faith actions were allowed in California, the insurance market deteriorated substantially. It was plagued by inflated claims and payments, increased fraud, and higher insurance premiums. The state’s insurance system has experienced a dramatic recovery in the absence of third party bad faith lawsuits. Injury costs have dropped, overall auto insurance premiums have been reduced and the market has become much healthier,” Marlow stated.

“We should learn from California’s experience and not experiment in Louisiana with this deeply flawed doctrine,” he said.

“The other bill passed by the Louisiana Senate Insurance Committee today, SB 693, would repeal the 10 percent flex band rating system. This allows insurers to either decrease or increase premiums for auto and homeowners insurance policies by 10 percent without getting prior approval from the Louisiana Insurance Rating Commission,” explained Marlow.

“Flex rating, as this is called, enables insurers to quickly respond to changes in the marketplace, which ultimately increases competition benefiting consumers in the long run. Requiring every change to go through the Rating Commission is not only time-consuming, but results in additional costs for both insurers and consumers,” Marlow stated.

“Repealing flex rating is bad public policy that will, in the end, unnecessarily jack up costs for Louisiana policyholders. Our state’s senators should reject SB 693 when it is considered by the full Senate,” concluded Marlow.

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