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When Do My Insurance Rates Go Up?

Steven R. Andrade Dec. 21, 2015

Jury Awards Do Not Impact Insurance Rates

Your insurance rates do not go up because of jury awards, plain and simple. While many residents of Southern California might have heard differently, we want to dispel this extremely harmful myth. In short, do not believe this insurance company propaganda. Your insurance will not go up if a jury votes to award damages to a plaintiff in a personal injury lawsuit. In Santa Barbara, we have seen too many injury victims go without the damages they deserve simply because of insurance company propaganda. There is absolutely no correlation between lawsuits and increased insurance rates. If anyone or any entity tells you differently, do not believe it.

An article in the Huffington Post recently discussed this problem that is afflicting Southern California residents who are seeking compensation from insurance companies through lawsuits. The author of the article, Joanne Doroshow, is the founder Executive Director of the Center for Justice & Democracy (CJ&D) at New York Law School, and co-founder of Americans for Insurance Reform (AIR). Her teaching focuses on getting civil justice through the court system. That is precisely the issue involved in current misconceptions about insurance lawsuits and rate increases.

Cutting Off the Legal Rights of Californians

As Doroshow explains, the insurance industry offers one major explanation—lawsuits—for “severe rate hikes.” This misinformation by the insurance industry is making it extremely difficult for Californians who have been injured to get the jury verdicts they deserve after they file claims against insurance companies. The misinformation spread by the insurance industry allows insurance companies to keep more money. This deception hurts Southern California residents who deserve to be compensated and wrongly encourages members of juries to find in favor of the insurance company simply because they are scared that rates will rise.

To understand the ways in which the insurance industry is deceiving regular Americans, it is important to understand a little bit more about how liability insurance works. When we talk about liability insurance, we are not referring to your health insurance. Doroshow makes clear that health insurance rates are “guided by a whole different set of rules.” Rather, we are referring to insurance policies that fall into the “property/casualty sector,” including but not limited to:

  • Auto insurance

  • Medical malpractice insurance for healthcare professionals

  • Directors and officers insurance (D&O) for businesses

  • Other liability policies

What makes these rates rise and fall? It is not—and we repeat not—jury verdicts. In the article, Doroshow explains the real reasons that Santa Barbara residents could see their insurance rates increase or decline.

The Real Reason Liability Insurance Rates Rise

In the last three decades, insurance rates have spiked up and then stabilized three times, according to Doroshow. In other words, the pricing is cyclical. If we believed insurance lobbyists, we would come to think that big jury awards for plaintiffs in the 1970s were the reason that insurance rates went up during that decade. Then, as insurance rates declined for about 10 years, we would have to believe that juries were not awarding large verdicts for injured plaintiffs. Then again, when insurance rates spiked in the mid-1980s, we would have to assume that jury awards were again to blame. Doroshow underscores that “such an explanation is ludicrous—and untrue.” Indeed, as she makes clear, “at no time did claims or payouts spike during any of these periods, and it is certainly not happening now.”

We should not be swayed by insurance pressure. Instead, all Southern Californians should get the facts about why insurance rates actually rise and fall. What do you need to know?

Whenever insurance rates are not rising, the insurance market is referred to as the “soft market.” When we are in a soft market period, there is intense competition among insurance companies to get people to buy policies. The insurance companies want to get your money to invest, and they are competing with many other liability insurance companies to get those dollars. Given that there is such competition, it is possible that insurance companies will under price policies. In other words, consumers can pay less than the policy's actual value during soft market periods. Insurance companies under price policies just to win out at getting premium dollars.

Insurers Do Not Raise Rates Because of Jury Awards

To put it another way, insurance companies essentially cannot afford to raise insurance premiums during soft market periods because they would not afford to be able to stay in business. There is so much competition that insurance companies cannot increase premiums. And insurance companies do not like soft periods. They want to be able to raise rates, but it is important for consumers to remember that jury awards are not events that allow insurers to do this.

Rather, according to an article in Insurance & Financial Advisor citing the chief executive officer of one national insurer, the soft market results in all insurers “competing more aggressively with more capital for a pie that keeps shrinking.” The only way to get out of the soft market and to raise rates is not a shift in jury awards. Instead, he said, “It's going to take outside forces . . . . I think a natural disaster, a natural property disaster, could be a causative event that could turn the market.”

Contact an Aggressive Santa Barbara Personal Injury Attorney

Santa Barbara residents should understand, without a doubt, that insurance companies do not make rate decisions based on jury awards. You should know that the cute little Geico commercials, the cute little Aflac duck, the obnoxious Liberty Mutual commercials, and other insurance advertising schemes are not paid for with lawsuits. Rather, insurance premium money pays for those ads. Insurance companies are not making more money when you vote in favor of a seriously injured plaintiff.

Do not be fooled by the hype. If an individual is seriously injured because of another party's negligence, the individual deserves to be compensated. And that compensation will not impact insurance premiums. If you have questions about filing a personal injury claim, you should discuss your case with an aggressive Santa Barbara personal injury lawyer. Contact Andrade Law Offices today to learn more about our services.