When the state legislature finally finds itself face-to-face with an issue such as whether to re-enact or rewrite Florida's automobile personal injury protection (PIP) law, it is with the full knowledge that there will be no easy path to a solution. Among other things, lawmakers know they will be confronted by a relentless full court press on the part of the insurance industry, health care providers, and the trial bar, all of which are dedicated to either rewriting the law in their favor or preserving the advantages afforded them by retaining the status quo. Lawmakers also know they can only duck these issues for so long given the short length of the 60-day session. Still, as the legislative session opened, Senate lawmakers signaled they were in no hurry to tackle the more contentious PIP issues as they executed a time-tested legislative sidestep onto firmer political ground by launching a public battle against fraud.
Background
Looking back, there are probably a large number of lawmakers who regret they supported placing a provision in a 2003 auto PIP bill, which calls for the law to sunset in 2007 unless reenacted by the legislature this year. And already a number of lawmakers are going on record as saying they will only support repealing the sunset provision. Senate Banking and Insurance Vice Chair Steven Gellar (D-Hallandale Beach) made it clear at the committee's first meeting where he stood. “It is my recommendation that we made major changes in 2003 that have not yet made their way through the system and therefore we should reenact the PIP law,” he said.
In 2003, the inclusion of the sunset provision was viewed as a means to avoid some of the more controversial issues surrounding PIP including implementing a medical fee schedule, changing the formula for calculating attorneys' fees, and re-writing the conditions governing PIP lawsuits. Instead, lawmakers built on a 2001 law that was designed to reduce fraud by targeting crime rings, which staged accidents to collect PIP benefits. A statewide grand jury found that these rings used runners to collect law enforcement accident reports that were used by unscrupulous attorneys to solicit victims. The lawyers then worked in concert with clinics where physicians ordered unnecessary costly tests to drive up reimbursements. In turn, doctors would kick back part of the insurer payments to the lawyers.
As a result of the grand jury report, lawmakers in 2001 and 2003 implemented a number of reforms to stop the most egregious fraudulent practices. For example, with the exception of individuals involved in an accident and their attorneys, all other individuals must wait until 60 days after the date of the accident to access police reports. Lawmakers also made it a third-degree felony to unlawfully obtain accident reports. The new fraud laws also included a minimum mandatory two-year prison sentence for those convicted of organizing or participating in staged auto collisions. Lawmakers also increased penalties for solicitation with “intent to defraud” to a second-degree felony and made it a felony to create, market, or present a false insurance card.
Building on the 2001 law, lawmakers in 2003 made more changes, many of which focused on health services. The Department of Health was required to establish a list of diagnostic tests that are not “medically necessary,” and, therefore, can be disallowed by a carrier regardless if the physician makes a request for the treatment. The law also mandated that only Florida-licensed physicians be allowed to conduct independent medical exams. The law also stated that no insurer or person acting on behalf of an insurer could materially change an opinion in a medical report or direct the physician preparing such medical report to do so. Lawmakers also eliminated the $2,000 deductible and set out a series of regulations governing the payment and non-payment of providers' bills.
Fraud Laws Pay Off
The degree to which legislative provisions reduce fraud is difficult to measure since it is unquantifiable. There is no way to determine how many individuals decided not to commit fraudulent acts because of the law changes. Also, the perceived impact of the law changes could be magnified by favorable changes in market conditions. Be that as it may, there is evidence, both anecdotally and otherwise, which suggests the 2001 and 2003 laws have had a positive impact on the system.
According to a Senate Banking and Insurance staff report, Florida's PIP market has made substantial gains in lowering loss cost, claims frequency, and attorney involvement. One major measure of PIP costs is the pure premium rate, which is the average PIP loss per insured vehicle. In 2005, the pure premium rate was $127.92, which represented only a modest 2.4 percent increase over 2003. By comparison, between 2000 and 2003, the pure premium cost increased by 22.9 percent. One reason for the improvement in pure premium levels is a reduction in claims frequency. The number of PIP claims dropped by 4.2 percent, from 1.9 paid claims per 100 vehicles in 2001 to 1.8 paid claims per 100 vehicles in 2005. However, the average cost per claim has risen by 31.4 percent, from an average of $5,300 in 2000 to $7,000 in 2005. There has also been a large reduction in the total number of insurance-related lawsuits in the state, the majority of which are attributable to a decline in PIP cases. In 2004, there were only 21,446 such cases as opposed to the 67,400 cases in 2001.
The Senate Banking and Insurance Committee is poised to debate a proposed committee bill addressing PIP. And the early draft of the bill contains many industry-backed provisions such as implementing some form of a medical fee schedule and eliminating the contingency risk multiplier method when calculating attorneys' fees. Under current law a judge can use two approaches to calculating claimant attorneys' fees. The first is the lodestar method whereby judges multiply the number of hours an attorney spends on the case by an hourly rate. The second more expensive attorney fee calculation method involves the use of a contingency risk multiplier. In such a case, the judge calculates a lodestar fee then multiples it from a range between one and 2.5, if the judge finds the injured worker could not have obtained a competent attorney without the additional fee. However, health care providers and the trial bar feel they have plenty of ammunition to beat back those proposals and lawmakers are making it clear the burden of proof for making any changes lies with the industry.
“If insurance companies think they can sit back here and collect premiums and pay less claims, it's not going to work that way,” said Senator Bill Posey (R-Rockledge).
TABLE 1
Top 20 Private Passenger Auto Insurers by Written Premiums
Direct Statewide Written Marketshare
Company NamePremiums(by percent)
State Farm Mutual Ins. Co.$2,274,611,67919.7
Allstate Ins. Co.$944,852,4437.97
Geico General Ins. Co.$692,121,0755.83
Progressive American Ins. Co.,$457,290,5353.85
Nationwide Mutual Fire Ins. Co.$383,372,8723.23
Progressive Auto Property Ins. Co.$374,557,4653.16
Progressive Express Ins. Co.$373,656,3373.15
Allstate Property & Casualty Ins. Co.$338,507,3522.85
State Farm Fire and Casualty Co.$333,284,8932.83
Government Employees Ins. Co.$321,147,3942.71
United Services Auto Ins. Co.$291,559,5422.46
Allstate Indemnity Co.$285,297,9952.41
United Automobile Ins. Co.$270,257,5172.28
Direct General Ins. Co.$236,244,1811.99
Geico Indemnity Co.$225,776,1961.90
Mercury Ins. Co., of Florida$214,616,5781.81
USAA Casualty Ins. Co.$200,484,9521.69
Geico Casualty Co.$172,718,4031.46
Liberty Mutual Fire Ins. Co.$168,557,2731.42
First Floridian Auto & Home Ins. Co.$149,700,0051.26
TABLE 2
Top 20 Commercial Auto Insurers by Written Premiums
Direct Statewide Written Marketshare
Company NamePremiums(by percent)
Progressive Express Ins. Co.$229,880,50811.48
Auto-Owners Ins. Co.$128,878,7056.43
State Farm Mutual Auto Ins. Co.$63,729,1643.18
Aequicap Ins. Co.$62,192,2523.11
Allstate Indemnity Co.$58,480,0122.92
Allstate Ins. Co.$54,080,8112.70
Lincoln General Ins. Co.$48,971,6842.45
Zurich American Ins. Co.$41,344,2022.06
Traveler's Prop. Cas. Co. of America$40,459,1692.02
Universal Underwriters Ins. Co.$36,201,2731.81
Philadelphia Indemnity Ins. Co.$35,963,9731.80
Empire Fire & Maine Ins. Co.$31,716,5521.58
St. Paul Fire & Marine Ins. Co.$31,686,1081.58
US Security Ins. Co.$31,598,9711.58
Hartford Underwriters Ins. Co.$26,573,5981.33
Continental Casualty Co.$23,151,9441.16
National Indemnity Co. of the South$23,140,1891.16
Liberty Mutual Fire Ins. Co.$21,102,6411.05
Integon National Ins. Co.$20,817,9691.04
Westfield Ins. Co.$20,100,2591.00
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