Tuesday, January 25, 2011

Declining insurance revenues will directly harm thousands of attorneys

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.


  1. how is Great Southern Life doing? I depend on them to be there to allow me to keep my cryonics membership..

  2. I can't help but think that the proliferation of personal injury shops is behind this. It's like dealing with Walmart. They have a high volume of business with cheap labor and are not hurt as much if insurance companies start cutting their payouts.

  3. Not that I disagree with your statement, but I hope you can at least appreciate how some people might read this and find some irony in you calling people on Wall Street and in Washington "parasites."

  4. Most European countries spend much less on health care and everyone is covered. It is a human right. (Also, most people look much better than Americans which is no coincidence).
    Do you think we have these crazy suits for crazy money? No....I hope we will not import this American ponzi scheme.

  5. To anon @ 9:39

    I understand that some people who read this will see personal injury lawyers as parasites. I know some firms that are "parasitic" in their ways. But there are many firms which are very ethical. For example, my office does not pimp out our clients by making them overtreat with the doctors. We ask them how they feel and if they have improved then we tell the carrier/defense that they have stopped treating.

    The reality is that the pendulum has swung to the other extreme. Judges are telling me that plaintiffs who got rear ended are getting DEFENSED at trial!! Juries are very hostile to PI plaintiffs making our jobs that much harder.

    Many people scoff and dismiss the PI lawyer and PI plaintiff, until some douchebag who is too busy playing with their iphone rear ends their car at 35mph. And when the insurance carrier tells them that they are willing to offer $500.00 to settle their claims, the phone starts ringing.

  6. My experience is that Allstate is the stingiest insurance carrier.
    -PI Drone

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  8. The fact is insurance company pigs are no longer willing to settle cases, as they were in the past. Now, you see legit PI claims where the carrier is going to fight the injury lawyers to the death, over $10K.

    It is a different world. Before anyone says, "Good, that keeps premiums down," please use your brain first. Insurance companies ALWAYS come up with reasons to increase premiumms, i.e. lower than expected gains, "greedy" PI lawyers (somehow the executives as Allstate are not greedy), re-insurance, the sun rose, etc.

  9. I think this analysys is preposterous. Insurance companies have always settled for the lowest amount they could, no matter the economic climate. I suggest you start taking those insurance companies to trial a few times to show them what happens when they don't settle fairly.

  10. I know one single weapon that could be used to warn future law students about the realities of being an attorney. The flipside is I do not know if its available, but read on.

    I do not know how every state bar works, but in CA, you can waive your State Bar annual fees of $410 if you swear under penalty of perjury that you made less than $20,000 from all sources of income. You consent to being audited by the State Bar if they choose to do so.

    Why not request from the CA State Bar, or any State Bar, the number of requests they get for full waivers, how many ultimately get approved, and compare it to the number of licensed active attorneys in that State? Those numbers should get posted on every single website that rails against law schools, e-mailed to every Dean of a 3rd/4th tier law school, and just brought out in the open the way that NY Times article was.

    Such a number would be an in-you-face reality number of the income attorneys make in any given state. At the very least, a prospective law student would think twice about applying to law school if those numbers were high, and he saw them, because they are pretty indisputable, especially if you get the number of waivers that were approved, and it is not too far off from the number of waivers requested.

    In addition, if law schools were forced to admit the real postgraduate employment numbers, as in what percent of the "95% employed after graduation" were as PRACTICING ASSOCIATES with SALARIES, these two figures should be shown to every prospective law student, on a conspicuous form, which would really break it down for them. I think these numbers would cut past alot of bullshit, and would be the key basis for a prospective law students decision to attend law school.

  11. A worth reading blog along with facts and figures which you have given where ebb and tide of one insurance dimension is well elaborated. Thanks Subprime JD. I think this happens in global market in all fields especially in corporate culture. And no matter it would be set aside within a months or days. May be the modus of the neo technique would be changed but you all will see the change.
    Insurance industry is fastest growing industry in the world. I’ve started also one informative site on insurance info and surely I am requesting to all fellows that you all will help us as well.
    Anyway I liked your efforts and mind blowing blog.
    Thanks and keep it up please!

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