The Louisiana Legislatures Attempt to Reduce Auto Insurance Rates with No Pay, No Play: The Answer, A Step in the Right Direction, or Completely Useless?

• Author: Rachel Jenny
• Pages: 543-561

Page 543

I Introduction

Louisiana is one of forty-seven states in the nation plus the District of Columbia (D.C.) to require some form of auto insurance coverage.¹ This requirement is driven by each state's need to promote stability and protect its citizens when they suffer losses in an auto accident.² Louisiana, like most states, requires each driver to maintain minimum third party liability coverage.³ The Motor Vehicle Safety Responsibility Laws require a minimum Bodily Injury (BI) coverage of $10,000 per person and $20,000 per accident and Property Damage (PD) coverage of $10,000 per accident.⁴

Unfortunately, this coverage costs money and affects an overwhelming percentage of Louisiana citizens. As such, it is one of the only laws by which the state imposes an expense on its citizens. Some think this imposition is unfair. Others believe it is a necessary evil and completely justified. Regardless, it is the law that must be observed and a cost for all to bear.

Louisiana has a history of battling high auto insurance rates. Compulsory auto liability insurance legislation intensifies the effect of this problem; both the rich and poor are required to purchase car insurance. As part of this battle, the State has kept a close watch on insurance rates. Until recently, any rate change required prior approval by vote of the Louisiana Insurance Rating Commission (LIRC) and, even now, the filings are reviewed for actuarial soundness and changes in excess of ten percent reach the LIRC's agenda.⁵ The public is also very aware of auto insurance rates; the renewal notice informing a policyholder that their premium hasPage 544 increased rarely goes unnoticed. Furthermore, the major newspapers consistently report rate changes, usually in the upward direction, of the state's top insurance writers.

To do its part to address rising insurance rates, the legislature passed the Omnibus Premium Reduction Act of 1997, mandating a ten percent rate decrease for auto liability coverage.⁶ This decrease was to be offset by a recovery limitation for uninsured motorists, known as No Pay, No Play. Since its highly publicized passage, the No Pay, No Play legislation has received little attention.

Section II of this paper sets forth the backdrop the legislature was working against by surveying the plight of Louisiana auto insurance consumers. Next, section III analyzes the statute from beginning to end. It reviews the development of No Pay, No Play, its enactment, and the courts' and legislature's subsequent actions. Section IV attempts to quantify the statute's effects in comparison to its purpose for an overall evaluation of the legislation. Finally, section V of this paper presents several proposals for future legislative action to keep the auto insurance reform ball rolling.

II Diagnosis of Skyrocketing Rates and Treatment With no Pay, no Play

A Breaking the Bank: The Louisiana Insurance Epidemic

Louisiana auto insurance rates have consistently been among the highest in the United States. In 1997,⁷ Louisiana ranked eighth in the nation for estimated average expenditure per vehicle for private passenger auto insurance.⁸ The only states higher were New Jersey, D.C., New York, Hawaii, Connecticut, Rhode Island, and Nevada.⁹

Louisiana's average expenditure of $841.07 per year was nineteen percent higher than the national average and exceeded neighboringPage 545 states Texas, Arkansas, and Mississippi by thirteen percent, forty-eight percent, and twenty-nine percent respectively.¹⁰

More troubling than its rank by auto insurance rates, Louisiana tops the chart for yet another negative statistic. Louisiana's "Pain Index" is the highest in the country.¹¹ The "Pain Index" refers to the ratio of average auto insurance expenditure to median household income for a family of four in a given state.¹² Louisiana families spend an average of 1.64% of their income on auto insurance.¹³ This percentage is just slightly higher than second ranked D.C., which has the highest auto rates in the country.¹⁴ Louisiana drivers are definitely feeling the pain.

B The Louisiana Legislature's Prescription: No Pay, No Play

With most of their constituents facing the auto insurance rate problem, Louisiana legislators naturally sought influence on the rates through legal measures. Without taking the radical approach of actually setting the rates companies could charge, the multitude of factors that affect insurance rates could be targeted with rate decrease prompting legislation.

Perhaps inadvertently, the multitude of tort reform passed in 1996¹⁵ had an impact on auto insurance rates. An independent study commissioned by the LIRC determined that the changes in comparative fault recovery and the partial elimination of the strict liability doctrine would reduce losses for private passenger auto policies, namely BI coverage.¹⁶ Beginning in September of 1996, the LIRC required companies to factor the calculated 6.2% savings onPage 546 losses for BI coverage into their rate filings.¹⁷ Losses are just one of many components of an insurer's rates, so even though consumers likely realized a premium savings on this one coverage, the amount was probably slight. This tort reform, though marginally helpful, did not provide much relief from Louisiana=s extreme auto insurance burden.

1. Legislative History and Development of No Pay, No Play

In 1996, Governor Foster, having always been a proponent of auto insurance reform, was eager to implement measures specifically designed to reduce rates. He appointed the Louisiana Task Force for Reduction of Automobile Insurance Rates (Task Force) with the express purpose of generating a feasible and promising proposal for reducing auto insurance rates in Louisiana. The Task Force, through its subcommittees, considered many options ranging from the reasonable to the ridiculous. A few of the rejected proposals were to: ban radar detectors; raise the minimum driving age to sixteen; prohibit happy hour sales; repeal the direct action statute; and move to a no-fault system of auto insurance.¹⁸

The Task Force next sought help from an Actuarial Subcommittee composed of a Department of Insurance (DOI) actuary and other insurance industry experts. They directed this subcommittee to evaluate the impact of as many proposals within their time and resource constraints and identify the five proposals that would result in the highest insurance savings. The subcommittee closely evaluated ten proposals and sorted the rest into groups based on their expected savings potential. The top five proposals and their estimated savings on a basic package policy¹⁹ were as follows:²⁰Page 547

Proposal:	Percentage Savings	Dollar Savings
No-Fault 21	37% to 44%	$138 to $164
GAP Coverage 22	9.0% to 14.0%	$34 to $52
UM Coverage for Economic Loss 23	8.0% to 9.0%	$30 to $34
No Pay, No Play 24	4.3% to 10.0%	$16 to $37
Modified Comparative Fault 25	5.0% to 5.8%	$19 to $22

The legislature implemented two of these proposals, UM Coverage for Economic Loss and No Pay, No Play, as part of the Omnibus Premium Reduction Act of 1997.²⁶

The first and foremost purpose of the No Pay, No Play statute was to lessen the burden of compulsory auto insurance;²⁷ upon the statute's passage, the legislation required insurance companies to implement rate reductions based on the projected savings. An immediate rate reduction of ten percent on both the BI and PD coverages was forced upon the insurance industry.²⁸ Notably, thisPage 548 rate reduction was the maximum of the range of estimated premium savings calculated by the Actuarial Subcommittee.

A secondary purpose of No Pay, No Play was to encourage compliance with the Motor Vehicle Safety Responsibility Laws, thus reducing the uninsured motorist population.²⁹ The statute was intended to influence society's behavior by introducing yet another penalty for being uninsured. Failure to maintain the requisite security could already result in a vehicle's registration being revoked, vehicle impoundment, fines, license suspension, and even imprisonment in rare situations.³⁰ Similarly, No Play, No Play represented the most recent attempt at reducing the uninsured population.

The No Pay, No Play concept was nothing new in the realm of auto insurance reform. At the time, a few other states had enacted similar legislation. Since the enactment of Louisiana's statute, however, others have followed. California, New Jersey, Michigan, and Alaska all have employed the No Pay, No Play approach to reducing insurance rates as well as lowering the uninsured population. The laws in California, Michigan, and Alaska preclude uninsured motorists involved in an accident from collecting any non-economic losses such as pain and suffering, mental anguish, and disfigurement.³¹ New Jersey's version of No Pay, No Play states that motorists who do not carry the requisite coverage have no cause of action for any damages.³² Louisiana's version appears more moderate, barring recovery for the first $10,000 in damages for both the BI and PD coverages by uninsured drivers.³³

However, since most losses are within the $10,000 threshold, Louisiana's law is nearly as harsh as New Jersey's No...