West Virginia Insurers Seeing Positive Results from 2005 Law

West Virginia auto insurers saw their underlying costs slashed by about $200 million in the five years after the state passed legislation preventing some injured parties from suing after a vehicle accident, according to a new report from the Insurance Research Council (IRC).

The Third-Party Bad Faith Act, which took effect in 2005, eliminated the right of third parties to file lawsuits against another person’s insurer when the claimant felt the insurer had failed to fairly settle their claim.

Instead, the legislation replaced the litigation route with an administrative process by which claimants could file complaints with the state insurance commissioner, who was authorized to investigate and impose fines and penalties on insurers found to have violated state business laws.

The insurance commissioner was given authority to award economic damages and up to $10,000 in other damages to third parties, in part from a trust fund established by increased insurer examination fees, according to the Independent Insurance Agents of West Virginia.

As a result of the legislative changes, insurer losses due to bodily injury claims from personal vehicle crashes have plummeted, according to the report from IRC, a research division of the American Institute for Property Casualty Underwriters, a nonprofit trade group.

West Virginia’s loss costs were 47 percent higher than the national average from 2000 to 2004, but they dropped to be only 7 percent higher than the national average in 2010.

IRC officials say that reduction is attributable to a decrease in the severity—or size of—bodily injury claims since the law took effect in West Virginia.  According to the report, claim severity dipped 8 percent between 2006 and last year, despite steady increases in other states.

“These findings suggest that the reforms enacted in 2005 had a major impact on the incentives insurers and claimants face in the claim settlement process,” Elizabeth Sprinkel, senior vice president of IRC, said in a news release. “This is important information for legislators to consider when contemplating similar reforms in other states.”

West Virginia passed the legislation in response to a report from state officials that found the number and severity of claims was leading to an increase in premiums from even the top rated auto insurance companies.

West Virginia regulators said the law’s passage led to “significant rate reductions,” including a 9.8 percent drop in premium costs after the first year.


About Gregor McGavin
Gregor McGavin is an award-winning journalist who has reported across the country for such publications as The Associated Press, the Arizona Republic, the Pittsburgh Tribune-Review and the Press-Enterprise.

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