The ratings war

While auto insurance premiums elsewhere are declining, Louisiana's are the highest in the nation.

You're a 40-year-old male who commutes 12 miles to work each day.

You carry comprehensive auto insurance with policy limits of $100,000 for injury liability, $300,000 for all injuries and $50,000 for property damage, and, of course, you sprang for the uninsured motorist coverage, too. Your deductible is $500.

You have a clean driving record and good credit.

If you live in Louisiana, you pay $2,536 a year. If you live in Maine, you pay $889 for the exact same coverage. Moving just one state over to Texas, Mississippi or Arkansas will cut your premiums by $1,000 a year or more. In fact, the national average is just $1,438.

Louisiana has the most expensive car insurance rates in the nation. While premiums are actually falling in other states, average rates in this state have remained virtually flat since 2004 despite a handful of reforms, and the state's drivers continue to pay for it.

“We've always been a top 10 state, for as long as I have been involved,” says Louisiana Insurance Commissioner Jim Donelon. “Our history has been one of no change going all the way back to 2004. Our ranking has actually gone up a couple of notches because most states have been seeing decreases in auto rates while we have been flat.”

It remains the insurance category where Louisiana perpetually stands out above the rest. While homeowner insurance rates have soared in the wake of recent disasters, we're not alone in that regard: The same is true for states all along the Atlantic and Gulf coasts. (Louisiana's annual premium is $370 higher than the national average, and ranks third, behind Florida and Texas.) And when it comes to workers' compensation insurance, the state actually has one of the more affordable rates in the country.

So where do we point the finger for costly auto insurance? Uninsured motorists? Drunk drivers? Miles and miles of bad road? Those lawyers on television who promise gigantic legal awards if we've been in an accident with a “big rig”? Or plain old corporate greed on the part of the national insurance companies?

There is a common misperception that uninsured motorists are primarily to blame for high premiums. But that isn't exactly the case. The percentage of uninsured motorists in Louisiana is 13%, which puts it right in line with the national average of 13.8%, according to a recent report by the Insurance Research Council. Compare that to neighboring Mississippi, with its uninsured motorist rate of 28% but premiums that are about $1,000 a year lower than Louisiana's.

That said, however, another 40% of Louisiana drivers carry only the bare minimum coverage required by law, which is $15,000 for bodily injury to one person, $30,000 for bodily injury to multiple people in a single accident, and $25,000 coverage for damage to someone else's vehicle or other property.

“That means the majority of drivers we share the road with are either uninsured or minimally insured,” Donelon says. “So that speaks to the absolute necessity to have coverage in place to protect yourself from underinsured or uninsured drivers. But it is not the primary reason for high rates.”

Judge and jury

Regulators and insurance industry representatives both point to the one major factor in Louisiana that keeps its auto insurance rates higher than those of other states: litigation.

Louisiana drivers are pretty much in line with their peers across the nation in terms of filing claims for property damage. According to the American Institute for Chartered Property Casualty Underwriters, 4.36% of the state's insured drivers file a claim for property damage—just a tad bit above the national average of 3.69%.

But when it comes to filing bodily injury claims, we're way out of whack. Nationwide, just under a quarter of insured drivers seek compensation. In Louisiana, 43% do.

“That's almost double,” says Jeff Albright, CEO of Independent Insurance Agents & Brokers of Louisiana. “We are the highest in the country, and we have been the highest in the country for years and years and years. So it's no big secret: If we make lots more claims for bodily injury damages and bring more litigation, and therefore cost the insurance companies a whole lot more money than any other state, guess where our rates are going to be?”

Donelon says a top executive at Louisiana Farm Bureau—a major auto insurer in the state—once confided that the firm holds 17% of the policies in place in the umbrella Southern Farm Bureau Casualty Insurance Company, but 50% of the lawsuits. Southern Farm Bureau also issues policies in Arkansas, Colorado, Florida, Mississippi and South Carolina.

“That is typical of our claims-to-litigation experience in this state,” the insurance commissioner says, “and frankly, that's what drives our costs through the roof.”

As it turns out, the problem is isolated primarily to four parishes whose rates are correspondingly at least 10% higher than those of the rest of the state: Orleans, St. Bernard, Plaquemines and Jefferson (see chart on page 55). And according to insure.com data, one ZIP code stands out above all—70117, which includes the Lower Ninth Ward and the Bywater and Holy Cross neighborhoods. It has the highest insurance rates in Louisiana, and thus the nation.

Part of the problem, industry advocates say, is that Louisiana remains the only state in the nation that requires civil claims to reach $50,000 before permitting a jury trial. Cases under that threshold are decided by a judge.

According to IIABL, 36 states have no such threshold, and the average is generally much lower—$15,000. The second-highest jury-trial threshold in the country is Georgia, and it is $25,000—half of what Louisiana's is.

Industry advocates dismiss the notion that juries might be less sympathetic than a judge to an out-of-state insurance company.

“Insurance companies prefer jury trials,” Albright says. “The reason for that is, judges are elected officials. They're politicians. They're not supposed to be, but they are. If a constituent comes into their courtroom and says, 'I've been hurt and I need some money to pay for my injuries,' it's pretty difficult for an elected judge to look a constituent in the eye and say, 'No, I'm going to rule in favor of this big, out-of-state insurance company and shut you down and not give you any kind of reward.' I'm not saying that judges are bad; I'm not saying they're making this stuff up. I'm saying they're human beings. And if you're in a courtroom and some guy is giving you a long sad story and he's one of your constituents, it's hard to say, 'No, you're not going to get any money.'”

Political will?

Donelon and Albright—both of whom serve on the Louisiana Property and Casualty Insurance Commission, which reports annually to the Legislature— say Louisiana's rates could be much lower if the state had the “political will” to make it happen. Lowering or eliminating the monetary threshold for jury trials, they say, would go a long way.

But attempts at passing such legislation over the years have failed, and they aren't hopeful it will happen anytime soon.

The last time the Legislature instituted significant insurance reforms was in 1998, when it passed the Omnibus Premium Reduction Act. It included the no-pay-no-play provision, which bars those who drive without insurance from recovering economic damages from an insured driver in the event of an accident. That measure came with a mandate that auto insurance companies lower their liability costs by 10% across the board, which at the time improved Louisiana's ranking for high average premiums by several slots. But additional measures aimed at further reducing premiums never made it to the floor.

A year after taking office in 2006, Donelon also abolished the Louisiana Insurance Rating Commission, which attracted about two dozen new auto insurance companies to the state. But the commissioner says the added competition has only served to keep the rates in check, not reduce them.

Albright says what's also needed is a cultural change: Drivers need to realize that insurance rates are directly linked to lawsuits.

And that's a difficult thing to do in a state where law firm commercials advertising potential big payoffs against insurance companies are plentiful.

“There are reasons some of our insurance rates are high and reasons some of our rates are low,” he says. “There's no mystery to it. It's not a conspiracy by the insurance industry, which is what a lot of people like to think. People have to decide: Either we're going to be very strict on lawsuits, and we're going to pay less on our insurance; or we're going to be very generous on our lawsuits, and we're all going to pay high rates. The insurance companies don't care. They're going to make a profit sooner or later no matter what we do. It's all on us.”

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