Alabama's Claims Litigation Rise: Impact on Auto and Commercial Liability Premiums

A recent review by the Alabama Department of Insurance (DOI) highlights a notable rise in claims litigation and large verdict sizes, which are impacting insurers' loss costs and pushing auto and commercial liability premiums upward. This increase is detailed in findings from an August data call involving 167 insurers, representing a significant portion of the market.

The report indicates that, except for homeowners' lines, the frequency of claims decreased from 2020 to 2024. However, the proportion of claims that resulted in litigation increased from 10% to 13%. During this period, total payouts surged by 38%, and the average payout rose by 45%, far exceeding the national inflation rate. Harrison Proctor, director of Alabamians for Legal Reform, suggested that this increased claim severity points to factors beyond regular cost escalations, potentially indicating heightened legal involvement.

Escalating Medical Malpractice Costs

Medical malpractice claims exhibited the largest cost increases. Although the number of claims saw a minor decline, total payouts among the 167 carriers ballooned from $9.6 million to $23.5 million, marking a 140% increase. The average medical liability payment more than doubled to $58,974, highlighting significant underwriting challenges for carriers.

Risk & Regulatory Consulting, an actuarial firm, performed the data analysis. An unnamed insurer mentioned adopting a cautious approach towards litigation, acknowledging reduced willingness to proceed to trial given the potential for substantial damages. This shift in strategy results from the necessity to adjust premiums in response to higher claim costs and the unpredictability of large verdicts.

Regulatory Environment and Legislative Action

While some states, such as Florida and Georgia, have implemented tort reform efforts potentially influencing insurance premiums, Alabama has yet to adopt similar measures. A proposed bill, Senate Bill 293, which intended to address litigation financing and employer liability, did not advance past committee in 2024. Harrison Proctor remains optimistic that legislative action may occur in the future, potentially after upcoming elections.

Despite these findings, Jennifer Bowen, Public Information Officer for the Alabama DOI, clarified that the data call aimed purely at gaining insights into the state's liability insurance landscape rather than pursuing legislative changes. The DOI's methodology paralleled approaches in other states to maintain consistency, specifically excluding homeowners' liability claims to align with Georgia's data collection practices.

Trends Influencing Auto Liability Premiums

Although Alabama has experienced a significant rise in private passenger auto liability premiums from 2022 to 2024, the DOI report stops short of attributing this entirely to increased legal activity. It suggests a partial link, citing factors such as aggressive advertising by legal services. The American Tort Reform Association reported substantial spending on such ads, although Alabama's metro areas were not among those with the highest concentration of legal advertisements. The full DOI report provides further insights into these trends.