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Class Action Firms Don’t Exactly Feast On Insurance

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Sometimes the insurance industry takes a back seat to banking and finance in industry comparisons. Not this time. According to figures from NERA Economic Consulting, consumer class action settlements involving allegations against firms in the banking/finance sector far outpaced such settlements in the insurance sector between 2010 and 2013.

This is not to say the insurance industry was not a target of class action lawsuits or that it did not settle such suits. Both of those things happened. But the NERA numbers show the industry took fewer lumps over the years when compared to is closest competitor (and sometimes ally), the banking/finance sector.

NERA, a New York consulting firm, tracked such settlements in 12 industries. The researcher says it identified a total of 479 consumer class action settlements over the four-year period — 66 in 2010, 111 in 2011, 141 in 2012, and 161 in 2013. These are cases that that reached either a preliminary or final settlement.

Given the litigious environment and the economic stresses of that period, the steady increase in settlements probably comes as no surprise.

But what may bring an “Oh!” is NERA’s analysis of types of allegations in 321 of those cases. These are class actions where settlement fund values were reported. The data show that the insurance industry came in with smaller percentages than the banking/finance sector in four of seven allegation categories of these 321 cases.

In the fraud category, for instance, the insurance defendants who settled represented only 5 percent of cases involving such allegations. By comparison, the banking/finance sector dwarfed insurance with settlements representing a whopping 57 percent of cases involving fraud allegations.

In addition, insurance represented just 10 percent of the total for “multiple allegations” cases compared to banking/finance’s 19 percent.

Two other allegation categories where insurance fared better than banking/finance were: false advertising/misrepresentation (0 percent versus 3 percent), and violation of consumer privacy (4 percent versus 18 percent).

In the three remaining categories, the differences between the two sectors were nonexistent or very narrow. For instance, insurance represented the same percentage of settlements as banking/finance for cases involving allegations of inadequate warning/information (9 percent) and antitrust (1percent).

In only one allegation category did insurance settlements do worse (represent a higher percentage) than banking/finance — this was in product liability (4 percent versus zero percent).

Unfortunately, the researchers did not break down the insurance category by line of business, such as life-health or property-casualty, so insurance wags on either side can’t claim bragging rights based on this data.

Still, since actual class action settlements for the broad insurance industry pale in comparison to those of its moneyed siblings (banking/finance), that’s something for insurance birds to crow about.

That’s especially so considering that class action law firms do circle around insurance carriers and distribution firms whenever the law firms sniff trouble. Sometimes there are so many sniffers, you wonder if the target companies will be eaten alive. But based on the NERA findings, the banking/finance sector seems to have provided a more bountiful feast for the law firms than anything insurance has provided.

By the way, NERA reports that the banking/finance sector had not only the most cases settled but also roughly half of the $18 billion in aggregate settlement dollars reported between 2010 and 2013. Roughly 40 percent of the $18 billion total came from just one case in the banking/finance sector — a Visa/MasterCard settlement of $7.25 billion, according to NERA’s report.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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