When the state legislature finally finds itself face-to-facewith an issue such as whether to re-enact or rewrite Florida'sautomobile personal injury protection (PIP) law, it is with thefull knowledge that there will be no easy path to a solution. Amongother things, lawmakers know they will be confronted by arelentless full court press on the part of the insurance industry,health care providers, and the trial bar, all of which arededicated to either rewriting the law in their favor or preservingthe advantages afforded them by retaining the status quo. Lawmakersalso know they can only duck these issues for so long given theshort length of the 60-day session. Still, as the legislativesession opened, Senate lawmakers signaled they were in no hurry totackle the more contentious PIP issues as they executed atime-tested legislative sidestep onto firmer political ground bylaunching a public battle against fraud.

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Background

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Looking back, there are probably a large number of lawmakers whoregret they supported placing a provision in a 2003 auto PIP bill,which calls for the law to sunset in 2007 unless reenacted by thelegislature this year. And already a number of lawmakers are goingon record as saying they will only support repealing the sunsetprovision. Senate Banking and Insurance Vice Chair Steven Gellar(D-Hallandale Beach) made it clear at the committee's first meetingwhere he stood. “It is my recommendation that we made major changesin 2003 that have not yet made their way through the system andtherefore we should reenact the PIP law,” he said.

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In 2003, the inclusion of the sunset provision was viewed as ameans to avoid some of the more controversial issues surroundingPIP including implementing a medical fee schedule, changing theformula for calculating attorneys' fees, and re-writing theconditions governing PIP lawsuits. Instead, lawmakers built on a2001 law that was designed to reduce fraud by targeting crimerings, which staged accidents to collect PIP benefits. A statewidegrand jury found that these rings used runners to collect lawenforcement accident reports that were used by unscrupulousattorneys to solicit victims. The lawyers then worked in concertwith clinics where physicians ordered unnecessary costly tests todrive up reimbursements. In turn, doctors would kick back part ofthe insurer payments to the lawyers.

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As a result of the grand jury report, lawmakers in 2001 and 2003implemented a number of reforms to stop the most egregiousfraudulent practices. For example, with the exception ofindividuals involved in an accident and their attorneys, all otherindividuals must wait until 60 days after the date of the accidentto access police reports. Lawmakers also made it a third-degreefelony to unlawfully obtain accident reports. The new fraud lawsalso included a minimum mandatory two-year prison sentence forthose convicted of organizing or participating in staged autocollisions. Lawmakers also increased penalties for solicitationwith “intent to defraud” to a second-degree felony and made it afelony to create, market, or present a false insurance card.

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Building on the 2001 law, lawmakers in 2003 made more changes,many of which focused on health services. The Department of Healthwas required to establish a list of diagnostic tests that are not“medically necessary,” and, therefore, can be disallowed by acarrier regardless if the physician makes a request for thetreatment. The law also mandated that only Florida-licensedphysicians be allowed to conduct independent medical exams. The lawalso stated that no insurer or person acting on behalf of aninsurer could materially change an opinion in a medical report ordirect the physician preparing such medical report to do so.Lawmakers also eliminated the $2,000 deductible and set out aseries of regulations governing the payment and non-payment ofproviders' bills.

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Fraud Laws Pay Off

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The degree to which legislative provisions reduce fraud isdifficult to measure since it is unquantifiable. There is no way todetermine how many individuals decided not to commit fraudulentacts because of the law changes. Also, the perceived impact of thelaw changes could be magnified by favorable changes in marketconditions. Be that as it may, there is evidence, both anecdotallyand otherwise, which suggests the 2001 and 2003 laws have had apositive impact on the system.

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According to a Senate Banking and Insurance staff report,Florida's PIP market has made substantial gains in lowering losscost, claims frequency, and attorney involvement. One major measureof PIP costs is the pure premium rate, which is the average PIPloss per insured vehicle. In 2005, the pure premium rate was$127.92, which represented only a modest 2.4 percent increase over2003. By comparison, between 2000 and 2003, the pure premium costincreased by 22.9 percent. One reason for the improvement in purepremium levels is a reduction in claims frequency. The number ofPIP claims dropped by 4.2 percent, from 1.9 paid claims per 100vehicles in 2001 to 1.8 paid claims per 100 vehicles in 2005.However, the average cost per claim has risen by 31.4 percent, froman average of $5,300 in 2000 to $7,000 in 2005. There has also beena large reduction in the total number of insurance-related lawsuitsin the state, the majority of which are attributable to a declinein PIP cases. In 2004, there were only 21,446 such cases as opposedto the 67,400 cases in 2001.

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The Senate Banking and Insurance Committee is poised to debate aproposed committee bill addressing PIP. And the early draft of thebill contains many industry-backed provisions such as implementingsome form of a medical fee schedule and eliminating the contingencyrisk multiplier method when calculating attorneys' fees. Undercurrent law a judge can use two approaches to calculating claimantattorneys' fees. The first is the lodestar method whereby judgesmultiply the number of hours an attorney spends on the case by anhourly rate. The second more expensive attorney fee calculationmethod involves the use of a contingency risk multiplier. In such acase, the judge calculates a lodestar fee then multiples it from arange between one and 2.5, if the judge finds the injured workercould not have obtained a competent attorney without the additionalfee. However, health care providers and the trial bar feel theyhave plenty of ammunition to beat back those proposals andlawmakers are making it clear the burden of proof for making anychanges lies with the industry.

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“If insurance companies think they can sit back here and collectpremiums and pay less claims, it's not going to work that way,”said Senator Bill Posey (R-Rockledge).

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TABLE 1

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Top 20 Private Passenger Auto Insurers by Written Premiums

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Direct Statewide Written Marketshare

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Company NamePremiums(by percent)

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State Farm Mutual Ins. Co.$2,274,611,67919.7

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Allstate Ins. Co.$944,852,4437.97

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Geico General Ins. Co.$692,121,0755.83

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Progressive American Ins. Co.,$457,290,5353.85

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Nationwide Mutual Fire Ins. Co.$383,372,8723.23

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Progressive Auto Property Ins. Co.$374,557,4653.16

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Progressive Express Ins. Co.$373,656,3373.15

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Allstate Property & Casualty Ins. Co.$338,507,3522.85

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State Farm Fire and Casualty Co.$333,284,8932.83

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Government Employees Ins. Co.$321,147,3942.71

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United Services Auto Ins. Co.$291,559,5422.46

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Allstate Indemnity Co.$285,297,9952.41

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United Automobile Ins. Co.$270,257,5172.28

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Direct General Ins. Co.$236,244,1811.99

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Geico Indemnity Co.$225,776,1961.90

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Mercury Ins. Co., of Florida$214,616,5781.81

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USAA Casualty Ins. Co.$200,484,9521.69

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Geico Casualty Co.$172,718,4031.46

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Liberty Mutual Fire Ins. Co.$168,557,2731.42

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First Floridian Auto & Home Ins. Co.$149,700,0051.26

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TABLE 2

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Top 20 Commercial Auto Insurers by Written Premiums

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Direct Statewide Written Marketshare

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Company NamePremiums(by percent)

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Progressive Express Ins. Co.$229,880,50811.48

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Auto-Owners Ins. Co.$128,878,7056.43

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State Farm Mutual Auto Ins. Co.$63,729,1643.18

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Aequicap Ins. Co.$62,192,2523.11

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Allstate Indemnity Co.$58,480,0122.92

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Allstate Ins. Co.$54,080,8112.70

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Lincoln General Ins. Co.$48,971,6842.45

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Zurich American Ins. Co.$41,344,2022.06

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Traveler's Prop. Cas. Co. of America$40,459,1692.02

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Universal Underwriters Ins. Co.$36,201,2731.81

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Philadelphia Indemnity Ins. Co.$35,963,9731.80

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Empire Fire & Maine Ins. Co.$31,716,5521.58

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St. Paul Fire & Marine Ins. Co.$31,686,1081.58

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US Security Ins. Co.$31,598,9711.58

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Hartford Underwriters Ins. Co.$26,573,5981.33

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Continental Casualty Co.$23,151,9441.16

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National Indemnity Co. of the South$23,140,1891.16

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Liberty Mutual Fire Ins. Co.$21,102,6411.05

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Integon National Ins. Co.$20,817,9691.04

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Westfield Ins. Co.$20,100,2591.00

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