When the Task Force for Affordable Auto Insurance (TFAAI) met for the first time Sept. 29, members heard from the director of The Louisiana Automobile Theft and Insurance Fraud Prevention Authority, the commissioner of insurance, a representative of the Louisiana Association for Justice, a representative of the Louisiana State Police Insurance Fraud and Auto Theft Unit and each other about what they believe the task force ought to accomplish.
Sen. Kirk Talbot, R-River Ridge, who co-chairs the panel and is chairman of the Senate Committee on Insurance, opened the meeting by saying that the purpose of the Task Force is to find ways to lower automobile insurance rates in Louisiana, where rates are the second highest in the nation. He pointed out that high rates are not a regional problem since neighboring states have lower rates. For instance, Alabama has the 32nd highest rates and Mississippi the 22nd highest rates in the country. Talbot wants “to explore the causes of rates being this high and what we can do to lower them.”
The TFAAI was formed via Senate Concurrent Resolution 28 of the 2020 First Extraordinary Session of the Louisiana Legislature. SCR-28 was introduced by Sen. Katrina Jackson, D-Monroe. The resolution requests that the Department of Insurance study and report on approaches taken by other southern states to reduce automobile insurance premiums, report statistics obtained by the Insurance Fraud Investigation Unit, and advise as to ways to increase the number of automobile insurers writing policies in the state and to report that information to the TFAAI.
When all of the appointments are made to the panel, the task force will consist of 19 individuals: two senators appointed by the president of the Senate; two representatives appointed by the speaker of the House of Representatives (one from each body will co-chair the task force); the commissioner of insurance, or his designee; the colonel of the state police, or his designee; one member appointed by the Louisiana Association of Business and Industry; one member appointed by the Louisiana Chapter of the American Federation of Labor and Congress of Industrial Organizations; five members, one appointed by each of the five insurance companies with the greatest number of automobile insurance policies written in Louisiana during the last calendar year; one member appointed by the Louisiana Association of Justice; the governor, or his designee; a Louisiana driver who is appointed by the Louisiana Chapter of the American Association of Retired Persons; a Louisiana driver appointed by Together Louisiana; a Louisiana driver appointed by the Public Affairs Research Council of Louisiana, and the attorney general, or his designee.
Darie Jordan, director of the Louisiana Automobile Theft and Insurance Fraud Prevention Authority, explained to the panel that the LATIFPA is housed under the Fraud Unit of the Department of Insurance and, as the name implies, is charged with assisting in combating insurance fraud and auto theft. To fulfill its charge, the LATIFPA awards grants to law enforcement agencies across the state and conducts community awareness campaigns.
The LATIFPA sought to look at statistics regarding the relationship between fraud and automobile insurance rates, Jordan said, but there is no data in Louisiana or other states, so LATIFPA reached out to the National Insurance Crime Bureau and the Coalition Against Insurance Fraud to get statistics for the study. “As of now, none are available,” she said. Next LATIFPA turned to other states to learn what they have done to combat fraud in their states.
“Other states,” she said, “try to prevent fraud on the front end.” As an example, she cited Kentucky where a law recently passed requiring insurance companies to offer discounts based on insureds’ vehicles having anti-theft devices. That legislation passed this session, so there are no statistics yet.
Georgia passed a law making participating in staged accidents a felony with mandatory minimum imprisonment. This also is a new law, so there are no data about how that impacts rates, Jordan said.
Commissioner of Insurance Jim Donelon told the panel that there is an assessment on every insurance policy in the state that funds the “fraud authority,” which was created by the legislature upon passage of a bill introduced by former Senator Dan Morrish, a Republican from Jennings.
According to Donelon, padding claims is the second highest criminal activity in America. It is second to tax fraud. That statistic is based on the expectation that there is a certain percent of taxpayers who don’t pay what they owe and that there is a certain percent of policyholders who exaggerate their claims when they have one. “It is a big cost factor,” he said. “But, I dare say it is not any worse for us than any other state.”
Talbot asked whether or not the staged accidents involving 18-wheelers in New Orleans, where a $6,000 surgery turns into a $650,000 issue, will cause auto rates to increase.
Donelon responded, “No question about it, but I think we don’t have any research to back it up.” He believes Louisiana’s laws are comparable to those in other states.
“I have to say though, staged accidents are horrific, and the ones now being written and televised about in New Orleans are off the charts in their brazen, audacious criminality. It is still a small number of cases versus the overall number of cases brought to litigation as a result of accidents. It is a factor in our cost, but it is not the factor in our being so out of line with neighboring southern states,” Donelon said.
He opined that the funding for the Fraud Prevention Authority is adequate for what the authority is called upon to do. “Basically, what we do in that team effort is provide the insurance expertise to the state police and to those who do the investigation work for the attorney general, who does the prosecutorial aspect of it.”
Without giving details, Mike Guy, representing the attorney general, indicated that “there is more that can be done, and the general and I plan on speaking about those issues and bringing them before the legislature.”
Talbot described the problem with auto rates as “multi-faceted,” and sought input from everyone on the panel on what they want to see come out of the committee.
First up was Guy, who said, “We need to find a way to reduce premiums, but Louisianans have a right to the legal process as far as personal injury is concerned.” Trying to find “a medium between the two is what we are seeking to do.”
Adrian Baumgartner, representing LABI, believes Louisiana has a “good system of laws,” but she questioned the ability of defendants to fully investigate and defend claims. It costs $4,500 to depose a doctor for one hour, she said. Courts are reticent to step in, and parties are reticent to go to court. “We should not have medical as a profit center,” she said, suggesting an approach that “keeps our system healthy.”
Noreen Ward, who has been 28 years with Louisiana Farm Bureau where she began as the litigation manager in the claims department, wants to “change the culture of this state.” She is frustrated with the current culture that, “if someone is in an accident, they do not trust the insurance company to be fair and resolve their claim without attorney representation.” She said she is exhausted by it and takes it personally. “You cannot tell me that we are not good people and that what we do is not noble. I am going to Lake Charles and see 100 of our adjusters who are working 18-hour days trying to resolve claims.” She believes that the pre-litigation area is the key to keeping auto rates down. “We need to let our policyholders and claimants know that we will work with them, and we will solve their claims fairly, and they will get to keep 100 percent of the money, not 60 percent of the money.”
Rodney Braxton, representing State Farm, believes the legislature “made a good start” in the last session passing legislation for tort reform, and when those changes start to impact how cases are litigated, the cost of litigation will decrease and help drive rates down. “The biggest driver of insurance rates in Louisiana is the cost of litigation,” Braxton said.
Braxton would like to see the task force focus, not just on the culture around insurance, but the culture around skilled driving in general. He mentioned hands-free cell phone use while driving, as well as eating, reading the newspaper and texting while driving as “cultural things” that drive up the cost of auto insurance.
“If we keep defeating bills for hands free, we are going to become an outlier there,” Talbot said. “It is just another reason why our rates are going to go up. We need to take a serious look at what other states are doing and protect ourselves.”
Talbot’s comments were an appropriate lead-in to Rep. Mike Huval, R-Breaux Bridge, who during more than one session has introduced legislation prohibiting hand-held cell phone use while driving. Currently, there are 27 states that have laws against distracted driving, according to Huval.
The pushback he gets on the distracted driving bills is that it takes away someone’s rights because they can’t speak in their vehicle.
“I am not going to give up on this,” he said, “because I have seen what it does in other states. It lowers their rates. It lowers the number of accidents.” And the fewer accidents there are, the fewer claims there are. “One follows the other. I am hoping we can see through the fog and realize that a hands-free bill would be good for our state.”
A 40-year veteran of the insurance business, Huval said that hiring an attorney is not a bad thing to do in certain circumstances, but it seems like the culture now is when someone gets in an accident, before they call the ambulance, they call an attorney, making it hard to adjust a claim. “Insurance companies have to incorporate this cost into their rates,” Huval said. “Just like any other business, at the end of the day, at the end of the month, at the end of the year, they have to make a profit, and if they don’t make a profit, they will do what has been happening in our state. They leave.”
It is not the insurance company that suffers, he said. “It is the consumer. It is the guy who has the logging truck, or the guy who has the wrecker truck, or the young lady or young man who drives a school bus and . . . has to close their business because they can’t afford $25,000 a year to drive the truck.”
Sen. Louie Bernard, R-Natchitoches, who serves on the Senate Committee on Insurance, told the panel that he hears people complain all the time about automobile insurance rates. He alluded to the situation with Farm Bureau which has 17 percent of its business and 52 percent of its claims in Louisiana. He does not know whether the wheel needs to be re-invented, but believes, if something is happening in other states that could be changed, or tweaked or modeled for Louisiana, “we owe it to our people to do that.”
Kevin Ainsworth, representing Progressive, said he already learned a couple of things that make him want to ask more questions. He seemed curious about whether or not the state has a felony law and whether or not the task force has cooperation from the Louisiana State Medical Society.
Sen. Robert Mills, R-Minden, serves on the Senate Committee on Insurance and on the Task Force for Log Truck and Agricultural Vehicle Liability Insurance. Relative to the task force that deals with insurance for automobiles and small trucks, Mills said, “If we can just lower our liability rates to equal Mississippi and Alabama, and I say this every chance I get, we are going to put $3 billion in the pocketbooks of the consumers of Louisiana.”
Robert Kleinpeter, who is with the Louisiana Association for Justice, is concerned about the fact that a previous auto insurance task force failed to hear from any consumer advocates. He wants the task force to look at the rating system – how people with perfect driving records but not so good credit are treated; how people are rated based on gender or marital status. He referred to the patriot penalty that could be actuarially justified, but “we decided is wrong.” Kleinpeter questions whether or not other rating decisions are made that are wrong.
Even though Kleinpeter wants to see more consumer advocacy input, he said, “If there is anything we can do to cut down on fraud or theft . . . we should certainly do that.” He added, “I say that with caution,” because the state’s poverty rate is the second highest in the country and the incarceration rate may be the highest in the world. “When you add those factors together, we have systemic issues that I am not sure we can solve by tweaking some insurance laws.”
Talbot was agreeable to hearing from consumer advocacy groups and invited Kleinpeter to let the panel know what groups he wants the panel to reach out to for the next meeting.
Michael Wilkerson, of the Louisiana State Police Insurance Fraud and Auto Theft Unit, told the panel that the State Police fraud unit receives referrals from the Department of Insurance and the Attorney General’s Office and decides whether or not to conduct a criminal investigation. Last year, the fraud unit accepted 1,090 referrals, opened 391 cases, and made 287 arrests of which there were 101 convictions, according to Wilkerson.
He said the state’s Insurance Code specifically addresses staged crashes. The statute mandates a five years at hard labor penalty with a $5,000 fine. The State Police mainly serve as a deterrent, he said. “We can put people in jail all day long for these crimes, but what happens to them after we put them in jail and (the case) goes through the legal process it is kind of out of our hands.”
There are 19 troopers and six supervisors assigned to the unit, Wilkerson said.
In response to a question asking whether or not the fraud unit has enough resources, Wilkerson said he would have to defer to the command staff. Nonetheless, he believes the manpower is sufficient and the penalties and fines in the law are sufficient, but he frequently sees charges amended or reduced during the judicial process.
The task force has until December 2021 to come up with recommendations and discern what legislation is appropriate.
