Filed Under:Agent Broker, Coverage Issues

Time for No-Fault Reform

A 40-year-old concept gains traction in tough tort environment

Over the past few years, increasing frustration with fraud, abuse and massive cost increases in several jurisdictions has forced legislators and regulators to take a serious look at reform of their state’s no-fault laws.

Today, 12 states have no-fault systems: Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah. Each state’s laws differ with respect to litigation thresholds, personal injury protection (PIP) limits and other factors such as the threat of lawsuits for "bad-faith"—all of which influence the effectiveness of the laws.

Less than a decade later, New Jersey’s auto insurance landscape has become pockmarked with new challenges, especially the spiraling out-of-control cost of PIP benefits.

When the legislature enacted auto insurance reform, lawmakers put aside the issue of PIP reform. This has been an expensive decision. Recent research found that the PIP healthcare benefit in New Jersey has cost $1.23 for every premium dollar paid by policyholders since 2009, elevating the state to the second highest average PIP claim costs in the nation. This research also found that questionable claims increased 40 percent from 2007 to 2009.

According to the OIR’s report, PIP payouts have increased from roughly $1.5 billion in 2008 to $2.5 billion in 2010. The report also found that between 2006 and 2010 the number of pending lawsuits at year end increased by 387 percent, while the number of settlements increased 315 percent. The report also indicated that Florida’s PIP pure premium, which is the amount of premium needed to cover losses, rose by 50 percent, from just under $100 per car at the end of 2008 to more than $150 in the third quarter of 2010.

Gov. Rick Scott and the state’s CFO Jeff Atwater have expressed an interest in reforming or even repealing PIP. According to documents obtained by the South Florida Sun Sentinel, the governor’s "legislative staff laid out preliminary priorities in August, with PIP topping the list." Driving the governor’s effort is his belief that PIP reform would be one way to make good on his campaign promise of tort reform. Insurance Commissioner Kevin McCarty and the Florida Insurance Council also have called for changes to the system. On the legislative side, the state’s Senate Banking & Insurance Committee released in September its background report on PIP that includes important data on the system and identifies major problems and issues. However, it does not contain specific legislative recommendations.

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