Alleged legal abuses in courtrooms across the country and California’s growing insurance quagmire are among the top issues to watch as state legislatures hit full throttle this year, with potentially big implications across the insurance industry.
Sources repeatedly cited tort reform as a crucial issue to watch for insurance practitioners this year, arguing measures in states like Georgia, Oklahoma and Louisiana are needed to tamp down on perceived legal abuses that raise costs for insurers.
Other issues of interest include efforts related to the use of artificial intelligence in the insurance industry, wildfire and cat modeling issues, workplace accidents and bills related to arbitration clauses.
In many states, lawmakers have been filing bills since at least January ahead of intro deadlines, many of which will land this month or in the first few weeks of March. Other states are still expecting bills for later legislative sessions.
“Insurance costs are obviously very much on the minds of consumers right now, and we’re seeing different states take different approaches to that, some good, some less so,” said Paul Martin, the vice president of state affairs for the National Association of Mutual Insurance Companies (Namic).
He added: “Where states are addressing the underlying causes of risk, through tort reform or mitigation, we see a chance for positive results similar to what has happened in Florida recently.”
But in other cases, he said, states are trying to limit underwriting or meddle with regulatory processes in the mistaken belief they can force down costs without creating other issues.
California lawmakers attempt to stabilize after a devastating start to the year
Among the numerous insurance issues attracting lawmaker attention, it appears California’s bid to find stability following last month’s Los Angeles wildfires is top of the list.
While much of the noise is currently focused on the California Department of Insurance (CDI) – which last year finalized regulations that aim to speed rate reviews and give insurers more tools in ratemaking – lawmakers in the state have introduced a handful of bills that could be important to the industry going forward.
A package of ten bills introduced by California Senate Insurance Committee chairwoman Susan Rubio and other lawmakers – with the backing of CDI commissioner Ricardo Lara – would address a range of wildfire risk-related issues.
The bills include measures to encourage home hardening through tax incentives, to create a public cat model, to allow the state’s Fair Plan to access cat bonds, and other restrictions on insurers like the extension of non-renewal protections after wildfires to commercial policies.
Yet another bill introduced in the state would let insurers sue oil companies for climate-related damages.
Tort reform on the to-do list in Georgia, Oklahoma, Louisiana and… Florida?
Industry insiders have lauded Florida for passing tort reform measures in 2023, and the enthusiasm appears to have spread to other states where lawmakers and regulators see worrisome signs for the health of their economies.
“Our current legal system is broken. The US tort system costs our economy an astounding $529bn annually,” said Deirdre Manna, the head of government and regulatory relations at Zurich North America. “The legislative efforts in play in statehouses across the country can have a real impact toward a fair and balanced legal system.”
Lawmakers in Georgia are currently considering a tort reform package that would tweak the state’s premises liability law and reform trial procedure, which proponents hope will help rein in “nuclear” jury verdicts, and curb what the industry calls excessive and frivolous litigation.
The state Senate voted last week to approve the package, which Governor Brian Kemp has championed as a way to address concerns that the Georgia insurance market is showing major signs of strain due to litigation. Kemp has overseen a data collection effort that indicates an increase in the frequency of claims, the average payout and that claims involving litigation are becoming more costly.
In Oklahoma, tort reform bills are likewise moving forward that would help protect firms against big judgments. One of those would ensure that marketing or selling lawful products cannot be deemed a public nuisance, while another key measure would reinstate caps on non-economic damages.
In Louisiana, legislators are also expected to revisit tort reform measures this year to help with the state’s persistently high auto insurance premiums.
Mark Friedlander, director of communications for the Insurance Information Institute, told this publication that legal system “abuse” is driving up the costs across private passenger auto, homeowners’ and commercial lines.
He said that plaintiffs' attorneys are “preying” on “vulnerable consumers” after catastrophes like hurricanes or wildfires and need to be reined in.
“Instead of settling claims directly with insurers, consumers are being encouraged to contact a billboard attorney to handle their claim,” Frieldander said, noting that III has launched a consumer awareness campaign that also includes billboards.
“Legislation to address legal system abuse at the state level is essential to curb these practices which are negatively impacting households and economies across the country.”
Stephen Waguespack, the president of the of the US Chamber of Commerce Institute for Legal Reform, said there is “no doubt” that there is a major need for reforms in those states and elsewhere.
“What’s really exciting to see is there’s just a growing awareness in the states of the impediment of a toxic legal climate, and what it can do to economic development, growth and wages,” Waguespack said. “We’re seeing a number of states step up and try to provide answers.”
But there may be dark clouds on the horizon threatening the tort reform momentum stemming from Florida.
Bills have been introduced in the Sunshine State that would roll back some of those legal reforms. The bills in question would allow one-way attorney fees to be awarded in some circumstances, even as many say the measures are achieving their original aims.
“The recent Florida legislative reforms are working and we encourage the legislature to let the changes continue to benefit the market, which ultimately benefits insurance consumers,” said Lisa Miller, Florida’s former deputy insurance commissioner and now disaster recovery expert.
She added: “With the 2025 hurricane season around the corner, we encourage the legislature to support additional resilience efforts reflected in current bills such as fortifying residences and businesses, stronger building codes and using fire, wind and flood resistant building materials.”
Some daylight for litigation funding?
Bills to boost transparency in Third Party Litigation Funding (TPLF), in which outside funders help pay the legal costs associated with bringing lawsuits, have also been introduced in several states including Arizona, Maryland, New Hampshire, Ohio and Oklahoma.
A bill over TPLF has also been reintroduced in the US House of Representatives by Rep. Darrell Issa and others.
“We are seeing state legislatures across the country move forward on proactive legal system abuse reforms, such as third-party litigation financing, phantom damages, and bad faith reform,” said Adam Shores, the senior vice president of state government relations at the APCIA.
He continued: “TPLF in particular is gaining significant momentum across the country as lawmakers look to increase transparency and enhance consumer protections around the use of TPLF in our courts.”
Artificial Intelligence, cyber security and climate
Various other bills are also being considered in places like Colorado, Illinois, New York and Texas addressing a range of insurance concerns.
In Colorado, a state that is at risk of wildfires and severe weather events, lawmakers are considering legislation that would require insurers to share information related to wildfire cat modelling with regulators. Another bill would clarify that the state’s new FAIR Plan isn’t a state department or agency, or a bonafide insurance company.
“The common goal of wildfire mitigation to reduce risk is shared by all,” said Carole Walker, the executive director at the Rocky Mountain Insurance Information Institute.
Walker added that any laws aimed at addressing those risks “needs to be meaningful and verifiable mitigation and be a law that provides transparency and incentives without further disrupting the market by putting costly, burdensome requirements on insurers that limits their ability to do business in a high wildfire risk state like Colorado,”
Lawmakers in Illinois, New York and Texas are all meanwhile considering bills related to artificial intelligence in insurance, alongside a range of bills related to auto insurance and no-fault insurance.
“I think this is just the tip of the iceberg for similar bills in 2025,” said John Rolecki, a partner at the law firm Varnum, of the AI legislation.
John Romano, principal and insurance regulatory and internal audit leader at accounting and advisory firm Baker Tilly, said that there is also likely a lot of work that can be expected out of the National Association of Insurance Commissioners (NAIC) this year.
The NAIC drafts and approves model legislation for states and is eyeing everything from climate change to data security and cybersecurity, Romano said.
“In the coming year, the NAIC’s discussions for property and casualty lines will focus on AI, big data, and cybersecurity, alongside the increasing challenges posed by climate risks and affordability,” Romano said.