The U.S. has a reputation for being a highly litigious nation. In fact, according to the American Tort Reform Association (ATRA), some states are so bad, they're considered "judicial hellholes."
Although it's certainly true that the U.S. has among the largest number of lawyers per capita, the propensity toward lawsuits is not evenly distributed. In its 2017–2018 report, the ATRA finds that the state of Florida is now the most litigious jurisdiction in the country, followed by California, St. Louis, New York City, Philadelphia, New Jersey; Madison and Cook counties in Illinois, and Louisiana.
Perhaps unsurprisingly, ATRA says these judicial hellholes are causing particularly negative effects on insurance markets, especially for medical malpractice and car insurance. Florida, in particular, now has some of the highest auto insurance rates in the U.S., thanks in part to fraudulent lawsuits that cost the state's personal injury protection (PIP) system.
Judicial Hellholes and Auto Insurance Rates: By the Numbers
States labeled as judicial hellholes also tend to have some of the highest car insurance rates. Here are the average car insurance rates for the top four states (excluding ones identified specifically by city) in ATRA's most recent judicial hellholes list:
- Florida (third most expensive): $1,596
- California (fourth most expensive): $1,588
- New Jersey (sixth most expensive): $1,460
- Louisiana (most expensive): $1,824
In California and New Jersey, there are a few other factors impacting those high insurance rates. Both states have particularly large populations. And while New Jersey's population is certainly far lower than California's, the Northeastern state's population density is the highest in the country, with more than 1,200 people per square mile. Additionally, both states have some of the longest commutes in the country—which can lead to higher insurance rates.
To add more fuel to the fire, one study found California sells the most luxury car brands of any state. These cars are expensive to replace or repair, which could lead to greater losses for insurers. In turn, that raises rates for California drivers. Many high-end automakers also sell heavily in New Jersey.
For Florida, fraud in the PIP system has led to rate increases as insurers seek to recoup some of the costs of paid-out claims. However, Florida also has a serious, ongoing issue with so-called third-party bad faith claims, in which drivers take an insurance provider to court under the belief that the provider either rejected a claim without merit or failed to properly negotiate to settle a liability. As a result, providers pass the cost to consumers, who ultimately pay higher insurance rates to mitigate this situation.
Then there's the case of Louisiana. According to Louisiana Insurance Commissioner Jim Donelon, Louisiana's high insurance rates might be due to bad consumer behavior. Many of the state's drivers are uninsured, Donelon says, while many others are insured but just carry the minimum amount of insurance required by law. Both issues cause drivers to more frequently turn to litigation after a collision.
Solutions to High Insurance in Judicial Hellholes
Consumers are not without assistance, at least in Florida and Louisiana. As the 2019 legislative session gets started, the Personal Insurance Federation of Florida said it intends to push reforms to limit bad faith insurance claims. And in Louisiana, business leaders are eagerly discussing various tort reform efforts that reduce fraudulent lawsuits.
In both cases, the goal is to help make it far more difficult to bring frivolous cases to trial, a move that would ultimately lower the cost of insurance for consumers.
States are also looking into other methods to help reduce insurance rates outside of litigation reform. In Louisiana, for example, the Department of Insurance set up a task force in 2018 to help research methods to lower the exploding car insurance rates. California already uses some price-protection measures. For example, auto insurers can't use credit scores when calculating insurance rates.
Nevertheless, consumers can't fully rely on lawmakers to solve these issues. Residents in states where car insurance rates are particularly high can take steps to help themselves. For example, you can purchase a car that's cheaper to insure and avoid traffic tickets, which typically hike auto insurance rates
Consumers should also shop around for the best price and consider combining their car insurance with other insurance policies when possible. Different insurance providers may offer a better value, especially when car insurance is rolled into another policy, such as homeowners insurance.
That said, car owners who live in judicial hellholes may just need to keep a good lawyer's number handy. Reducing insurance burdens can certainly help save money, but it won't stop someone who feels the urge to bring a car accident to court.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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