Filed Under:Agent Broker, Coverage Issues

The $1 Billion Problem

Transforming Florida’s no-fault system a priority in 2012

Over the last several years, pervasive fraud in Florida’s no-fault auto insurance system has cost consumers nearly $1 billion. Fraud costs in the Sunshine State have been rapidly exploding and are far worse than in other states. As a result, Florida has gained the dubious distinction of being the nation’s most fraud-riddled state. According to the National Insurance Crime Bureau (NICB), staged accidents and certain unscrupulous medical providers and unethical personal injury attorneys have landed four Florida cities in the U.S.’s top 10 personal injury fraud hotbeds: Tampa, Miami, Orlando and Hialeah.

Florida’s no-fault system was created with the intent of providing affordable, quick and fair compensation to accident victims, without regard to fault. Regrettably, this system is completely broken and plagued by fraud.

The amount consumers pay for insurance is primarily determined by the expected number of claims, the cost of these claims and settlement expenses. One reason for Florida’s high liability premiums is the fact that its third-party bodily injury claim frequency has increased dramatically, rising 19.2 percent from 2006 to 2010. In contrast, the frequency for tort states has remained fairly flat overall and the frequency for other no-fault states has been declining. The increase in Florida’s bodily injury claim frequency is especially apparent beginning in 2008, about the same time as the start of the financial crisis when total miles driven fell.

While the number of auto accidents in Florida has been decreasing, the number of no-fault claims has been increasing along with the number and charges for non-emergency medical bills. This is inconsistent with no-fault systems that are intended to reduce medical costs, providing first-party benefits in exchange for limitations on tort rights. The number of claims increased by almost 5 percent in Florida compared to a decrease in other no-fault states.

Bringing no-fault costs under control will require transforming the liability system. Although Florida’s no-fault system is complicated, the areas rife with fraud are easy to identify and the solutions straightforward. There are four essential fraud-fighting fixes that can be enacted quickly:

  1. Allow a reasonable amount of time to investigate suspicious claims. Although the vast majority of insurance claims are currently paid in less than 30 days, fraudulent attorneys and claimants have learned to game the system with false delays and threats of bad faith legal action to demand extra bounties.
  2. Eliminate incentives for frivolous no-fault lawsuits by placing caps on attorney fees. Florida’s courts are now clogged with no-fault litigation because trial lawyers filing no-fault claims are routinely getting rewarded with bounties up to $500 per hour for their work. Not surprisingly, unscrupulous attorneys can spend years litigating disputes involving minimal amounts.
  3. Provide greater oversight of medical clinics by allowing private on-site inspections of premises to ensure the services are real. Fraudulent medical clinics are using loopholes in the state’s clinic licensing laws to avoid oversight, steal business from legitimate hospitals and medical providers, and focus on building up unnecessary services with or without the knowledge of the claimant.
  4. Prevent fraudulent unnecessary medical treatment by establishing reasonable treatment limits. Overuse of unnecessary non-emergency care provided by various health providers and overcharges by providers are key cost drivers in the Florida no-fault system, contributing to high no-fault losses.

Related: Read the article "A Look Back at 2011" by Joan E. Collier.

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