Big I KentuckY Special Guest Kilgore addresses legal system abuse
On October 6, Vickie Kilgore, Vice President of the Insurance Research Council (IRC), presented research examining property and casualty insurance affordability, litigation trends and the potential impact of the legal environment on insurance costs. Her audience was the Joint Committee on Banking and Insurance.
For independent agents, much of what she presented probably sounds familiar. Kentucky has an affordability challenge.
Here’s an important distinction: what insurance costs and whether insurance is affordable aren’t necessarily the same thing.
IRC’s research compared average insurance expenditures with median household income.
In 2023, Kentucky’s average auto insurance expenditures were 18% below the national level and homeowners expenditures were 14% below the national level.
That sounds pretty good until you consider income.
Kentucky’s median household income was 23% below the national level.
The result is that Kentucky families spend a larger portion of their household income on insurance. IRC ranked Kentucky 36th among states for affordability for both auto and homeowners insurance.
For independent agents, that’s more than a statistic. It’s the customer sitting across the desk trying to decide what coverage they can afford.
Where does litigation enter the picture?
Insurance premiums have to reflect the cost of claims. When claims become more expensive to resolve, those costs can create additional pressure on insurance rates.
Kilgore’s presentation identified litigation as one of several factors affecting insurance costs and highlighted an interesting trend involving motor vehicle claims.
While motor vehicle claim frequency declined from 2014 through 2023, federal motor vehicle tort lawsuit filings increased.
IRC identified several litigation-related factors for policymakers to consider, including third-party litigation funding, attorney advertising, bad-faith litigation practices and contingency fees.
What is third-party litigation funding?
In simple terms, an outside party provides funding connected to a lawsuit in exchange for the possibility of a financial return.
It’s an issue receiving increasing attention because it introduces another financial interest into litigation and raises questions about transparency, incentives and the ultimate cost of resolving claims.
What can Kentucky learn from Florida?
Kilgore also presented Florida as a case study.
In 2022, Florida accounted for 71% of U.S. homeowners insurance lawsuits while representing approximately 15% of homeowners claims, according to IRC’s presentation.
Florida subsequently enacted significant legal reforms, including eliminating one-way attorney fees, eliminating Assignment of Benefits and changing liability standards.
IRC reported that following the reforms, homeowners and personal auto lawsuit activity declined, the insurance market showed signs of stabilization and rates decreased.
Florida and Kentucky are different insurance markets, so Florida’s experience doesn’t mean identical changes would necessarily produce identical results here. But it gives Kentucky policymakers a real-world example to consider as they examine the relationship between litigation, insurance markets and affordability.
Why should independent agents care?
Because you see the affordability problem every day.
You see customers increasing deductibles. You see families looking for ways to reduce premiums. You see people reducing coverage or choosing lower limits because something has to give in the household budget.
There is no single solution to insurance affordability. Weather, inflation, repair costs, claim severity and other factors will continue to affect premiums.
But Kilgore’s presentation raises an important question for Kentucky policymakers:
If there are costs within our legal environment that public policy can reasonably address, should they be part of Kentucky’s affordability conversation?
For Big I Kentucky, the answer is that the conversation deserves serious attention.
A fair, predictable and transparent legal environment is one piece of a healthy insurance marketplace. And a healthy insurance marketplace helps independent agents do what they do best: help more Kentucky families and businesses obtain the protection they need.
That’s why insurance affordability and Kentucky’s legal climate will continue to be important issues for Big I Kentucky and our members.