Insurance Industry v. Legal Funding, round one of 2014
Yesterday, the Tennessee Senate voted on the US Chamber of Commerce's model bill, SB 1360, to curtail the Legal Funding industry. The Sponsor, State Senator Jack Johnson, provided the Legal Funding industry no notice that he was going to call the bill to the floor as one of his first acts to the opening of the new Tennessee General Assembly session.
The bill that cleared the Tennessee Senate is a big win for insurance companies pushing for this, like State Farm and Allstate, over an industry that has no impact on them. The bill is a loss for consumers, free markets, freedom of choice, the little guy, and mathematics because everyone that understands math knows that the legal funding industry does not work at 25%. Several senators did stand up to say that this appeared to be an attack on Republican free market values. But perhaps that philosophy is only convenient when it impacts bigger corporate interests.
Hopefully the Tennessee House is more rational, and gets math and free markets better than the Tennessee Senate Republicans.
Way to stroke the insurance companies at the expense of consumer choice, Tennessee.
The TN Senate debate can be found here.
The "debate" starts out at about the 21 minute mark. If you watch, you will see a lot of confusion by both sides about what the legal funding industry does. Senator Campfield is utterly lost and confused. Admirable but fruitless defense of free markets by Senators Green, Gardenhire and Kyle. Comments include how does the government tell an investor what types of returns it can be limited to for taking on investment risk, and who determines that 25% is a fair profit, especially when we are at all time lows for interest rates which someday could be back in the teens. I especially appreciate Sen. Kyle's comment at the end to an unregulated industry becoming regulated: "welcome to the majority".
And who picked 25%? State Farm and the insurance industry lobby. The industry that views legal funding as a threat to the status quo of their power over plaintiffs in litigation. And the Senators ran with their rate without any sensitivity to the legal funding industry explaining that the rate is the kiss of to death to an industry with high loss rates and cost of capital that need more than a 25% return to even make money.
You can see from the debate that the Senators have no concept or context of the appropriateness of a 25% rate. Senator Johnson expresses that it is better than his colleagues who just wanted to outright outlaw the industry. He preaches that he at least is giving the product a rate cap than putting it out of business, and suggests that he believes legal funding is a valuable service. But not enough, apparently, to take any of the industry's input or to brush up on his math. The Senate Republicans made their insurance buddies happy by giving them their rate, and then lobbed the bill over to their colleagues in the House to deal with. They have has no incentive to be sensitive to a small industry like legal funding, or the several thousand customers of legal funding per year that view legal funding as a lifeline.
And that is a small portal into the sausage factory of politics.