What state bills have GEICO so concerned, and what could they mean for New Yorkers?
GEICO wasn’t happy with some proposed legislation last June. The insurance giant sent a statistics-filled email to its New York auto policy customers warning them of potentially expensive changes thanks to State Assembly Bills A5629B and A5623A and their companion bills, Senate Bill 3634-B and 6216.
GEICO warned that should this proposed legislation become law, it will “make it easier for trial lawyers to sue insurance companies”—potentially leading to a $7 billion increase in the cost of car insurance for New Yorkers. Both the Assembly and Senate bills are currently at the “In Committee” stage.
In the letter, GEICO framed its argument around the fact that New Yorkers are already annually paying $6,000 per household to fund legal processes related to auto claims. But the insurance company, of course, is just as concerned about its fortunes if the proposal is passed.
A closer look at the legislation
At first reading, the bills look good for the insured, proposing shifts in auto claim settlements that favor the claimant. Policyholders would have new grounds to sue insurers if they feel their claim was unfairly settled due to the insurer delaying or refusing payment without reasonable justification.
Plaintiffs would recover much more than the amount due under their policy if it can be proven that their insurer considered its interests above those of the customer. Plaintiffs could also recoup their legal costs, disbursements, and interest, alongside consequential and compensatory damages.
To avoid this outcome, insurers would have to prove that they carried out a prompt assessment and fair settlement of any claim. Companies would also have to show they accorded at least equal or more favorable consideration to the insured’s interests vs. their own.
Few would argue that the purpose of the legislation is just. The problem lies in the details and potential consequences. Every GEICO auto customer could end up footing the bill if the laws change, as the revisions may cause the legal community to actively go after insurers in search of a payday.
GEICO, lawyers, or New Yorkers—whose interests are served?
Some individuals in legal circles are casting GEICO as the bad guy; a company fighting a change that empowers customers and prevents insurers from lining their pockets. It’s an understandable view but not the whole picture.
There’s no denying that GEICO could stand to lose significant sums in legal payouts, and the new legal framework would incentivize insurers to pay out claims fairly. But it’s also likely that lawyers will pursue more legal action, and the potential costs would be passed on to all policyholders. The Assembly and Senate Bills may be blood in the water for attorneys to attack GEICO and other providers.
It presents something of a moral, legal, and financial Catch-22 for New Yorkers. Some legitimate claims may go un- or underpaid without the potential for litigation—but litigation will likely raise rates for everyone.
The bills are still in committee, and only time will tell if they become law. The impact of GEICO’s letter is also uncertain. Will insured New Yorkers care more about the possibility of failed claims that should have been paid, or the potential for their auto rates to rise?
The NICRIS Insurance team will keep you informed as this proposed legislation makes its way through the process.
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