State's Bad-Faith Reforms Have Reduced Auto Liability Costs By $200M
The Insurance Research Council (IRC) recently announced the results of its recent report analyzing the impact of third-party bad-faith reforms adopted in West Virginia.
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Based on its findings, IRC estimates that the Third-Party Bad-Faith Act (S.B. 418) introduced by West Virginia state legislature has reduced underlying insurance coverage costs by about $200 million in the five-year period since the reforms were enacted.
In 2005, S.B. 418 had been instated to eliminate the right of third-party insurance claimants to file lawsuits against another person's insurer if the claimant believed the company treated them unfairly in the settlement of his or her claim. Instead of relying on the courts, claimants were provided an administrative process for filing complaints with the Commissioner of Insurance, who was then responsible for investigating complaints and imposing appropriate fines and penalties where it was determined that an insurer had violated the state's Unfair Trade Practices Act. The passage of S.B. 418 was widely viewed as a major accomplishment in efforts to improve West Virginia's litigation environment.
The IRC report, The Impact of Third-Party Bad-Faith Reforms on Automobile Liability Insurance Costs in West Virginia, examines the impact of S.B. 418 within the context of personal auto bodily injury (BI) liability claim costs. IRC calculated BI claim frequency and severity loss trends in West Virginia before and after the reforms were enacted to arrive at its conclusion. Frequency and severity trends during the five calendar years (from 2000 to 2004) before the year in which reforms were enacted (2005) were compared with trends during the five calendar years following enactment (from 2006 to 2010). These "before and after" trends in West Virginia were then compared with countrywide experience for the same coverage and for the same time periods. Using countrywide experience as a control, IRC attributed significant differences between West Virginia and countrywide experience to the reforms enacted in 2005.
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