One big question that many people have is how insurance companies calculate their premium charges. Insurance companies base it on a number of statistical and actuarial factors, including total income from premiums and investment returns. But a large part of premium calculation is determined from historical claim payout experience. So, what happens to your premium when the amount of claim payouts increases?
That is the question on debate in Oregon where legislators are considering bills introduced by trial lawyers associations. If the four bills succeed in passing into law, then it is likely that the public will suffer the increase in premium costs due to more claims and higher payouts. This is according to insurance associations such as the American Insurance Association (AIA) and Property Casualty Insurers Association of America (PCI).
The associations are lobbying Oregon State legislators to vote against bills that could have a major impact on insurance premiums. These bills include increases in statutes of limitations on liability claims, increasing maximum wrongful death non-economic damages to $1.5 million, and eliminating an insurers ability to recover personal injury protection (PIP) costs from at-fault drivers who cause an accident.
If the bills should pass, then the state could see a dramatic increase in litigation and an increase of jury trials in the number of already overloaded court system. It also means that insurance companies will be legally obliged to pay more in claims and litigation costs. And if you’re wondering whether insurers will cover the increased costs out of their profits? Not a chance. Those costs will transfer back to the consumer in the form of higher premiums for insurance products such as health insurance, car insurance, and home liability insurance.
Indeed, good consumer protection includes allowing them to recover costs that insurance companies should be obliged to pay. But at some point a line must be drawn between consumer protection and excessive judgment awards.
