The company said it segments groups of customers based on a variety of risk factors — such as driving history. “Segmentation is the key to our being able to provide a competitive auto insurance rate to virtually any driver,” Bell added.

State Laws Crack Down on Fraud

Ironically, one of the reasons for the resurgence of the non-standard market came about as a result of the state having to tackle a fraud problem that threatened to undercut the entire auto market. Mansons said that partly due to fraud, the state's biggest carriers, such as State Farm and Allstate, raised their rates to a point where they priced themselves out of the higher-risk market. Instead, they marketed to drivers with cleaner records by offering incentives such as saying they will cut their rates if they avoid accidents or driving violations. As a result, more drivers had to seek coverage in the non-standard market.

Non-standard companies also had to adjust to the high level of insurance fraud, which had been punishing the industry in the late 1990s. In South Florida, for example, Mansons said many auto insurers won't process any claims unless they have pictures of an accident scene.

Responding to the market and monetary toll on companies and policyholders due to the high levels of fraud, the legislature finally tackled the issue in 2001 and 2003. In those years, legislation was passed that was designed 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. Additionally, medical clinics were required to be licensed by the Agency for Health Care Administration. To date, 2,435 clinics have registered with the agency, with over 65 percent of those clinics located in Miami-Dade, Broward, and Palm Beach counties.

The evidence shows that the reforms have allowed law enforcement officials to take a tougher stand on fraud. According to the state's Division of Insurance Fraud, PIP is the leading source of fraud, followed by workers' compensation. PIP fraud referrals increased by 400 percent, from 615 in fiscal year 2002-2003 to 2,628 in 2004-2005. At the same time, the number of PIP arrests grew by 74 percent and the number of cases brought to trial increased by 49 percent.

A Senate Banking and Insurance staff report also found that Florida's PIP market has made substantial gains in lowering loss costs, 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 2003 bill also contained a provision calling for the PIP law to sunset in 2007 unless reenacted by the legislature this year. The Florida Property and Casualty Association, a trade group representing a dozen insurers primarily offering non-standard auto policies, told the legislature it favors reenacting PIP, albeit with even stronger anti-fraud laws and reforms to attorney-fee awards.

FPCA President Charles Grimsley said the system could be repaired, with the right reforms such as more fraud-fighting resources, a medical fee schedule, legal fee reform, and having the offered judgment statute to apply to PIP cases. Under offered settlement, if an insurer makes an offer to settle and a litigant doesn't accept and loses, the insurer could then go after the litigant for attorneys' fees. PIP mills — medical clinics that work with attorneys to generate fraudulent claims — would “think twice” under such a system, Grimsley said.

Overall, the insurance industry is split on whether to let the non-fault law expire next year. And although lawmakers have debated the issue, it appears the sunset will be repealed and the PIP issue left for another day. Senate Banking and Insurance Committee Chairman Rudy Garcia (R-Hialeah) said lawmakers' priority must be homeowners' insurance. “There are only so many things that we can do in this committee and we cannot ignore the magnitude of the crisis we are facing,” he said.

Even though lawmakers will likely pass on PIP this year, there are still plenty of regulations that are having a positive effect. Yet another factor pushing customers to non-standard policies is the state's improved efforts to identify drivers who don't have insurance. Rather than waiting to find unlicensed drivers after traffic accidents or violating the law, the state Department of Highway Safety is working with the state's insurers to identify, within weeks, drivers who let their policies lapse. Then the state sends a notice to drivers about the need to get covered — or else face a fine. “We used to have people go without insurance for six months or more; now people come running in here after just 30 days,” Mansons said.

JUA Numbers Tell the Story

One measure of the performance of the non-standard market it is the status of the Florida Auto Joint Underwriting Association. In 2004, the association insured some 23,000 policyholders, which was down from 64,500 policyholders in 2002. Since then, however, the number of JUA policyholders has plummeted to 2,100. The number of vehicles covered through the JUA is also at its lowest point since the market of last resort was established in 1974. Currently, the association covers 835 private passenger vehicles and 3,470 commercial vehicles.

Part of the reason for the drastic depopulation of the JUA is the fact the association has pushed through a series of steep rate increases in the past four years in an effort to prod drivers into the private market. From 2002 to 2005, the JUA doubled the average rate for policyholders with a private passenger vehicle. Commercial policyholders saw rates increase by 50 percent in that same time period. Even so, JUA Administrative Coordinator Lisa Stoutamire says much of the credit for the association's small numbers is due to the private market. “More private companies are writing policies,” she said.

From the agents' perspective, without a doubt, non-standard policyholders require more work because they tend to have more claims, a poorer credit history, and are more likely to have trouble meeting deadlines to pay premiums. And agents don't get higher commissions for the extra work. Anecdotally, some agents say that more drivers are having to purchase non-standard policies because the big carriers are becoming more stringent on who they will cover. Insurers may require home ownership, proof of prior insurance without a lapse and an above-average credit score. “If you miss any of those then you might be looking at the non-standard market,” Mansons said.

Some companies, such as Gainsco Insurance, are selling non-standard policies to customers who don't own a car but need coverage to satisfy a court requirement. But that is the beauty of the non-standard market, said Mansons. There is coverage available regardless of the situation.

And that's good news for everyone.