You’ve seen it before on TV or in the news. A car crash victim is awarded a large amount of money for their injuries. There are some who may view it as excessive or an affront on society that large verdicts or settlements are running amuck and driving up the cost for everyone and it needs to be stopped.

One reason people who believe this may tell you is that yours and their insurance rates will go up because of large jury verdicts in a car crash cases. However, this is more of a myth and a convenient excuse perpetuated by the insurance industry they really have no incentive to correct. The reality is that the vast majority of insurance claims for car crashes never get to the lawsuit phase. If a lawsuit is filed there is typically (at least in Colorado) a long history or negotiation between the injured party and the insurance company that lead to the need by the plaintiff to file a lawsuit, so don’t be fooled into thinking that the insurance company is innocent or there was nothing they could do to prevent the filing.

Before we discuss why your automobile insurance rates increase, other than you are a risky driver, the next time you hear news that insurance rates will increase due to more frequent and costly claims, you may want to dig a little deeper than rather than just assume it must be due to all those for automobile claims you keep seeing on late night television. Remember insurance companies write policies for many different products in addition to automobile policies, such as homeowners, life, health, boat, motorhomes, snowmobiles, ATVs, flood, identity theft, long-term care, annuity, property, renters, workers’ compensation, and business insurance.  So, an increase in claims and losses may be due to other types of insurance claims and losses that have nothing to do with car crashes or automobile insurance. Also, claims or lawsuits are filed against insurance companies for more than failure to pay a automobile insurance policy claim. For example, in 2015 GEICO was involved in a large claim brought by the California Department of Transportation alleging GEICO used discriminatory practices by misleading customers it deemed less than desirable or a greater risk by quoting them higher insurance coverage than the minimum required pursuant to state law to scare them away. GEICO settled the claim for $6 million.

Now that you know there are more types of insurance claims than car crash claims and more types of losses for an insurance company than paying money to car crash victims, let’s talk briefly about insurance rates and how they are affected on an industry wide basis in other ways. Insurance companies do more to turn a profit than just collect more premiums than they pay in claims. Insurance companies do invest your premium in the market such as bonds, stocks, and mortgages. So, a tough year for an insurance company on its investments may lead to a rate increase to make up for the short fall. A natural disaster such as a hurricane or a large Colorado hailstorm causing major property damage across the state may require a rate increase. The insurance industry is a market in fierce competition with each other, just look at all the advertising by insurance companies fighting for your dollars. Other market or economic factors may play a role as well.

In reality, insurance rates are cyclical. There is an observable pattern to rate increases and stabilization, and not surprisingly there is no large increase in the amounts awarded in law suits during times rates are increasing. Very few jury verdicts by themselves could cause such an industry wide increase. A few years ago, Huffpost Business wrote a blog on exactly this, check it out here. The point is, lawsuits don’t cause your car insurance rates to go up – according to this article a lack of competition in the market is what drives rates up, no matter how much finger pointing at the lawyers and car crash victims the insurance industry does.

The reality is that it isn’t a sudden rash of car crash claims, lawsuits, or jury verdicts that drive sudden increases in insurance industry rates. It is much more complicated than that. However, this misunderstanding is all too real and tricks people to believe it does and in turn they unfairly penalize car crash victims misbelieving it will keep their rates down. In other words – sometimes jurors can take it too personally.

Siding with the victim in a lawsuit by awarding them fair compensation for their injuries and other losses doesn’t mean you will increase to your own insurance rates. It means you’re protecting yourself and others from the negligent actions of others and correcting

what the insurance company failed to do on its own. What if you are the victim of a car crash? How mistreated would you feel if the group of strangers you were asking to pay you for your injuries decided to underpay you because they were worried it would increase their insurance rates? You’d feel like the system let you down and you’d be right. Don’t be misled into thinking that a Plaintiff’s award for their injuries as a result of a car crash will increase your insurance rates. There is much more to it than that and the payment of claims is what insurance companies are paid to do.

Want to chat about a personal injury matter or discuss a matter involving your insurance company? Reach out today!