For an opposing point of view, see “Gov. Youngkin can make insurance companies honor their contracts” by state Sen. Scott Surovell, who sponsored the legislation.
Inflation has pushed the cost of just about everything up over the past few years — including motor vehicle insurance — so you’d be right to think it a particularly strange time for the Virginia General Assembly to pass a bill that could make your auto insurance premiums shoot up by as much as 14%. Yet that’s exactly what the assembly did this legislative session. And it’s not just consumers with their personal auto insurance policies who will pay the price. This bill applies to all motor vehicle insurance — including vehicles used for commercial purposes — which means it will impact Virginia businesses as well. Governor Youngkin has an opportunity to protect Virginia drivers and businesses from increased auto insurance costs by vetoing this harmful bill.
To the detriment of consumers and businesses, SB 256 benefits trial lawyers by opening the floodgates of litigation related to auto insurance policies through the establishment of an onerous first-party bad faith law. Only a few states in the U.S. have enacted such laws, but none are as troubling as SB 256, which will make Virginia an outlier.
Bad-faith laws incentivize litigation. Similar initiatives in other states have resulted in consumer harm. When Colorado, Florida and Washington passed similar legislation, studies showed there was an increase in the cost of insurance claims and insurance premiums, attributable to unwarranted increases in both settlement amounts and lawsuits. If increases like this occur in Virginia, it will ultimately negatively affect consumers.
A new analysis was conducted by Milliman Inc., an independent actuarial firm, to estimate the impact of SB 256. The analysis found that the legislation could have an additional premium impact of between $220 million to $550 million across motor vehicle insurance in Virginia, representing an increase of 5.6% to 14.3% in auto insurance premiums for drivers and businesses, respectively. The study concludes the median estimated impact is a 9.9% auto insurance premium increase per policyholder annually. Such an increase would come at a time when Virginians have already experienced a 36.2% increase in auto insurance rates over the last five years, driven by the increased costs of auto repairs and medical care.
On top of that, legislation enacted in 2021 increased the minimum limits of liability insurance coverage Virginians are required to purchase, which further increased costs. That law requires another increase in 2025 and will result in Virginia having some of the highest minimum limits in the country. When this increase takes effect next year, auto insurance costs will again rise for many Virginians, especially those who purchase the minimum levels of coverage — typically drivers who can least afford any more price hikes. Another detrimental side effect of increasing auto insurance costs? More drivers may go uninsured when they cannot afford coverage.
This unnecessary legislation will not add protections for Virginians. Virginia already has strong, robust consumer protections regarding insurance claims practices and strong regulatory protections, oversight and investigations. Most states, including Virginia, have adopted the National Association of Insurance Commissioners’ model Unfair Claims Practices Act. This law prohibits insurers from arbitrarily and unreasonably refusing to pay claims and not attempting in good faith to make prompt, fair and equitable settlements.
The Virginia Bureau of Insurance has full regulatory authority to handle consumer complaints and take action against insurers through market conduct examinations, fines, penalties and more. Even with its authority to act against insurers, the bureau found only seven instances of unfair claims violations in the five years of data provided by the bureau, further underscoring that SB 256 is not needed.
With the stroke of his pen, Governor Youngkin can stop this harmful bill from taking effect, prevent significant increases in auto insurance costs for Virginia drivers and businesses, and help keep the commonwealth from going down a dark road of excessive litigation and higher costs that will do nothing to protect Virginians.
Dr. Robert Hartwig is Director of the University of South Carolina’s Center for Risk and Uncertainty Management.
