As a personal injury attorney my livelihood depends on many factors, the most important factor being the health of the insurance carriers. We all pay into the insurance pool in exchange for being protected in the event of a accident. So long as the premiums the insurance carrier receives are greater than the expenditures of the insurer, the pool is sufficient. So long as there is a pool of money to compensate the injured clients, we get paid. In my line of work, we deal primarily with the following carriers: Farmer's Insurance Group, Allstate, Infinity, Geico, State Farm, and Mercury Insurance Group. Mercury is infamous amongst many personal injury lawyers as they tender the lowest offers out of all the carriers.
Me being the financial wizard, I began looking at the books of the carriers. Mercury's financial performance has been less than stellar. Here is the breakdown:
2010 3rd quarter results
Net premiums earned: $642 million
Loss adjustment expenses (settlements and verdicts): $440 million
2009 3rd quarter results
Net premiums earned: $653 million
Loss adjustment expenses: $446 million
2008 3rd quarter results
Net premiums earned: $696 million
Loss adjustment expenses: $511 million
2007 3rd quarter results
Net premiums earned: $748 million
Loss adjustment expenses: $497 million
2006 3rd quarter results
Net premiums earned: $753 million
Loss adjustment expenses: $491 million
Net premiums from Q3 2006 to Q3 2010 are down 14.7%. Loss adjustment expenses (settlements and verdicts) are down 13.8% from the 2007 peak. This drop off in premium income can easily be explained by the widespread job losses that the country has incurred. Unemployed people do not have the ability to pay insurance premiums. The worse the unemployment situation gets the more miserable PI attorneys will become. Once upon a time it was very possible to settle a case for 3 times the plaintiff's medical bills. Currently you will be lucky to even get 2 times meds on a small auto case. The other day I had to settle a case for 1.2 times meds. Pathetic.
Some will argue that the employment situation is getting better as job losses have stopped. The reality is that the new jobs being added are low wage, part time, or service sector bullshit. Strong organic job growth is lacking in this country and as long as the parasites on wall street and in Washington keep getting their way, the blood loss will continue. In fact, the majority of the job increases have been added in the medical industry and education. As soon as the education bubble pops those added payrolls in education will quickly reverse themselves. Also, up to 17% of GDP is spent on medical services. The historical mean is 10%. As we revert to the mean expect job losses to hit the medical industry as well. With more job losses to come expect less people to be paying for auto insurance which will result in less earnings for insurance carriers which will equate to smaller settlements for attorneys in the PI game.
In addition to plaintiffs attorneys, insurance defense firms will suffer as well. While many tier 3 and tier 4 grads work on the plaintiff's side, graduates from the best schools work on the insurance defense side, in addition to low tier graduates. Just the other day I was speaking to defense counsel on a case where the attorney was a top 25 grad. At the end of the day hundreds of thousands of attorneys rely on the insurance pool for their livelihoods. In addition, the medical complex also relies on this pool of money as Chiropractors, Orthopedists, Neurologists, hospitals and physical therapists are gainfully employed as a result of the personal injury field. These medical professionals are utilized for their treatment of patients and as expert witnesses in trial.
In conclusion, as the economy continues to deteriorate it follows that the insurance pool will decrease. As this pool of money gets smaller plaintiffs firms, defense firms and the medical services industry will all have to work more for less.