From the July 2011 issue of Florida Underwriter •Subscribe!

Waking Up to the Faults in No-Fault

Florida’s Flawed PIP System Continues to Cost Consumers and Insurers

Like being stuck in a recurring dream, the people of Florida continue to face the vexing question of what to do with a no-fault automobile insurance system that forces them to pay more for insurance than necessary.

In the search for solutions, insurers have always insisted that the system get back to its original intent. When first enacted in the 1970s, no-fault auto insurance was intended to address the underlying cost drivers in a tort-liability system that had made insurance more expensive than necessary. No-fault supporters pointed to benefits such as reduced non-economic damage compensation, increased compensation for injury victims, less compensation for personal injury attorneys, and faster recovery of out-of-pocket expenses by accident victims.

What has developed in the intervening 30 years is a seriously flawed system seemingly immune to repeated attempts at reform.

Once again the problem is spiking. During each of the last three years for which the industry has complete statistics, Florida has had the highest number of questionable auto claims resulting from staged/caused accidents in the nation. With 1,446 questionable auto claims in 2009, Florida accounted for 30.1 percent of the national total; nearly double that of second-place New York (765), a state with roughly the same population as Florida. Florida also had four of the 10 cities with the highest rates of questionable claims in the U.S.: Miami, Tampa, Orlando and Hialeah.

What we are seeing in recent years though is nothing new. It merely reflects a trend we have witnessed for decades. Year after year, the same problems persist.

Legislative Remedies
In 2001, the 15th Statewide Grand Jury issued reports that highlighted the impact of organized crime rings and rampant fraud associated with PIP claims. Florida’s Legislature responded by enacting many of the Grand Jury’s recommendations. These included increased penalties for soliciting accident victims, presenting false insurance applications, and intentionally causing motor vehicle accidents, among other fraudulent activities such as brokering patients between doctors, lawyers and diagnostic facilities, billing insurers for phantom treatments, and inflating charges. Sound familiar yet?

In 2003, the Legislature tried again. The Select Senate Committee on Automobile Insurance/PIP Reform noted that the average PIP claim rose 33 percent over a 5-year period to $5,687, and that Florida had become the fourth highest state in PIP and bodily injury costs among the 13 states with no-fault insurance laws.

The effort produced laws that increased criminal penalties again, licensed clinics, expanded the pre-suit demand letter, established a list of diagnostic tests as not “medically necessary,” and mandated that only Florida-licensed physicians conduct independent medical examinations. That bill also sunset the no-fault system on Oct. 1, 2007, unless reenacted by the Legislature.

Time passed.

Divisions on Sunset
In an April 5, 2006, article in the St. Petersburg Times entitled “Bush: Let No-Fault Lapse,” Gov. Jeb Bush showed he understood the problem when he was quoted as saying he shared insurers’ views that Florida’s no-fault law did not do enough to contain medical costs.

During the 2006 session, the Property Casualty Insurers Association of America (PCI) supported an agenda of reenactment with comprehensive reform including medical and legal utilization controls. But in the face of massive opposition from the lawyers, doctors, osteopaths, chiropractors, hospitals, clinics, and everyone else making money off the system, the Legislature chose to kick the can down the road and extend the sunset repeal by 2 years. True to his word, Bush vetoed that bill, and so the sunset countdown clock continued.

The industry began losing consensus then, as some insurers wanted to continue fighting in favor of reform while others viewed the 2006 result as proof that reform could not pass. By the 2007 session, some individual companies wanted the sunset to take effect without question while others supported keeping PIP in place. This left the industry pursuing an unfocused agenda that was confusing to lawmakers.

Also by 2007, Floridians were one-third more likely to seek legal assistance to help them settle their claims than elsewhere. More than half (54 percent) of claimants in Florida hired an attorney in 2007, resulting in an average economic loss that was double the loss of non-represented claims: $16,059 per claim—nearly triple the average claim from 2003. And attorneys received more in legal fees—about $6,000 per claim—than the claimants themselves.

On Oct. 1, 2007, Florida’s no-fault system stood repealed, and on Oct. 11, 2007, Gov. Charlie Crist signed no-fault back into place. In a special session on the heels of strong lobbying by Crist, the Legislature had reenacted no-fault, albeit with a medical fee schedule (good), but without utilization controls (bad).

According to a February 2011 analysis by the Insurance Research Council (IRC), PIP claims costs per insured vehicle rose 55 percent from 2008 to 2010, due to both frequency and severity. Broader statistics repeated all the greatest hits: higher incidences of neck and back sprains, greater chiropractor and MRI utilization, the use of pain clinics instead of hospital emergency rooms—and all of it surrounded by lawyers, lawyers, lawyers.

Garnering Consensus
In 2011, insurers built a coalition of business, law enforcement, and consumer organizations that called for meaningful but reasonable reforms. These included addressing court decisions on examinations under oath and independent medical examinations, expanding support for more investigation and prosecution of fraud, providing for the use of arbitration, and capping attorneys’ fees and repealing the indefensible contingency risk multiplier.

Newspapers editorialized on the pervasive fraud and its cost to consumers. Community leaders weighed in with Letters to the Editor. Hillsborough County Sheriff’s Office representatives repeatedly drove to Tallahassee to give frontline testimony at committee hearings about the growing public dangers. The proposals passed two House committees and one Senate committee before being derailed.

PCI is now engaged in the planning process for next year’s agenda, as are the other insurance trade associations. Early discussions among some vocal insurers and even some legislators in the wake of the 2011 session reveal that all options are on the table. Echoing 2006, the choices include reform or repeal. If reform, should the industry attempt to make steady incremental progress on the most critical issues, or seek a comprehensive answer that takes on all comers? If repeal, should the industry support replacing it with mandatory bodily injury coverage, an idea also supported by the trial bar? What about also mandating a first-party medical coverage, something the hospitals and health insurers demanded during earlier negotiations on repeal? If Florida does transition back to a tort system, wouldn’t that naturally need to be accompanied by some related tort reforms, like the ones that also failed to pass during the 2011 session? Do these questions sound familiar?

We will have some new numbers to add to the debate. In its February report, the IRC announced plans to release an update in late 2011 to better incorporate the latest closed claim data. No one will be surprised if the problems get worse.

Counting Down the Days
We do not have much time. The Legislature has already announced that interim committee meetings will begin the third week of September. The next session will convene two months early on Jan. 10, 2012, so that legislators can draw new legislative districts and deal with any anticipated legal challenges well ahead of the 2012 presidential election. This also means that redistricting and the accompanying political overtones will weigh over all other issues, even the budget, and legislators will likely prove even less interested in what they see as refereeing between interest groups. Only a public outcry that elevates the issue to the most critical level will provide the necessary impetus for decisive action.

PCI is committed to finding and fighting for solutions to Florida’s broken PIP system. Whatever the summer’s deliberations bring, PCI will work with our industry and coalition partners on the ground at the Capitol and in the air with the media, relentlessly pursuing not just the best solution, but also the right one for the benefit of consumers and insurers alike. 

Now is the time to fight the criminals who have put Florida at the top of the list for the highest number of questionable or staged auto accidents of any state in the country. Now is the time to stand for the majority of Florida drivers who are honest and responsible citizens. Now is the time to finally fix this system, because the alternative is to just keep dreaming.

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