Martinez said that in addition to battling the considerable influence that the doctors and lawyers have in the legislature, consumers see their auto rates as acceptable, especially given the aggressive rate increases in their homeowners' insurance. “This is a quiet crisis,” said Martinez. “People don't realize they are paying too much.”

Background

When Florida became just the second state in the country to enact a no-fault auto insurance scheme in 1972, it was viewed as a means to rein-in carriers' legal defense fees and speed up reimbursements to policyholders, health-care providers, and claimant attorneys. Florida has 14.8 million licensed drivers that operate nearly 14 million passenger cars and trucks within the state. The no-fault system is somewhat similar to workers' compensation in that it is a mandated coverage, which is designed to be self-executing by guaranteeing accident victims certain benefits in exchange for the victims not suing another driver.

Under current state law, all policyholders must carry at least $10,000 in PIP coverage, which pays up to 80 percent of medical expenses, 60 percent of lost income, and a $5,000-per-person death benefit. Set at monetary levels designed to cover the majority of physical injuries resulting from an accident, the benefits are paid irrespectively of whom is at fault. The law also prevents lawsuits against at-fault drivers for non-economic damages, like pain and suffering, except in cases of a permanent injury. What is known as the “verbal threshold” is when a policyholder, in order to file a suit, must allege his injury caused significant and permanent scaring or disfigurement, resulted in the significant loss of an important bodily function, or was fatal. The law also allows policyholders to sue in cases where there is no scaring or disfigurement if the injury is determined to be permanent within a reasonable degree of medical probability.

For years insurers have complained that the PIP system is ripe with fraud and too often enriches health providers and lawyers at the expense of policyholders and their carriers. Insurer representatives argued all session long that too many special interest groups profit from the auto insurance system, including doctors, attorneys, hospitals, and even more esoteric groups like acupuncturists. Among other things, the insurers said that without any price controls, the guaranteed $10,000 in medical coverage has fueled a cottage industry of clinics and doctors that do little more than PIP cases. This is especially in metro areas such as Miami, Fort Lauderdale, and Tampa.

An often-quoted 1999 grand jury described PIP fraud as “rampant” in Florida. And in recent years, state prosecutors have been busy breaking up rings that staged accidents and ran multiple drivers and passengers through these clinics to bill for treatment. As a result, lawmakers in 2001 and 2003 enacted a series of major reforms designed to reduce fraud and even many insurers concede the legislation has had a positive effect.

Division in the Ranks

In recent years, the insurance community has done much to settle its differences behind closed doors and present a unified voice before the legislature. But in the case of PIP, this proved not to be the case.

The insurers came down into three groups: the first wanted to repeal the no-fault system, the seconded wanted to retain the system predicated on lawmakers enacting major reforms, and the third wanted to retain the system in its current form. For example, no-fault law was extended over the objections of State Farm, Allstate, and Nationwide, which wanted to eliminate the law saying it adds at least $250 to every auto insurance premium. They were ready to scrap the law because they didn't think the current system could be fixed. But smaller, Florida-based insurers that serve high-risk drivers say they'll be hurt if the state abandons no-fault coverage.

Given the division in the industry, even the Florida Insurance Council was forced to take a neutral position on whether to retain the no-fault system. In fact, State Farm recently left the council, and the difference in opinion on auto reform was one factor. State Farm spokesperson Chris Neal said the council represented larger national companies and smaller companies, which had divergent goals. He said sometimes the association had more focus on companies that were trying to please investors. State Farm is a mutual insurance company meaning it is owned by its 2.8 million policyholders.

Neal said the industry has been trying for at least a decade to pass significant reforms with little success. “We didn't think the system could be reformed and the proof is what happened in the legislature this year,” he said.

Without hope for meaningful reforms, Neal said the state is better off going back to a tort system where parties sue each other to collected damages. While that system may appear to be more expensive because of more people going to court, it actually would be cheaper because health providers and attorneys would not be guaranteed payment in non-legitimate insurance cases. As it is, he said, too many special interest groups rely on the no-fault system to feed themselves. He noted that when Colorado did away with its no-fault system in 2003, auto rates fell by average of 31 percent.

Allstate spokesman Adam Shores echoed State Farm's position, saying that extending the sunset repeal of the no-fault system just postpones the issue. “We think a repeal of no-fault is best for consumers,” said Shores.

Lawmakers Pass Over Reforms

For the industry, the real driving forces behind the increased PIP costs is the over utilization of medical services and the level of attorney involvement. Critics say that unless some controls are placed on those services, PIP costs will continue to rise. With those goals in mind, critics turn to the state's workers' compensation system for answers. Both PIP and workers' comp are mandated coverages that provide policyholders with benefits in exchange for placing limits on their right to sue. And both systems involve the same interested parties including carriers, health care providers, and attorneys.

What makes the state's workers' comp system an appealing model to those supporting PIP reform is that workers' comp has a high degree of certainty, which allows carriers to project losses. Among other things, workers' comp has detailed criteria that workers must meet to collect various benefits including the ability of injured workers to qualify for permanent disability benefits. In the 2003 workers' comp reforms, lawmakers created a standard that linked an injured worker's ability to qualify for permanent injury benefits with the injured worker's ability to work. There was also uniform support for introducing a medical fee schedule. Workers' comp has provider reimbursement manuals for doctors, hospitals, and allied health care workers, which are based on the federal Medicare fee schedules.

Neal noted that the PIP system is the only insurance system that doesn't have set of cost guidelines. As a result, carriers often are stuck with medical bills two to three times the rates they should be and they have no recourse but to pay, he said. But despite the fact that the House Insurance Committee and the Senate Banking and Insurance Committee spent hours debating these issues, in the end they walked away without making any moves toward a resolution, which would have satisfied the industry.

Instead, lawmakers extended the sunset provision and made fairly minor changes in the area of fraud. One reform that made its way into the final bill is that crash reports must now contain information such as the date, time and location of crash, a description of the vehicles involved, names and addresses of parties involved, and names and addresses of all drivers and passengers. The reports must also contain names of all witnesses, names of all law enforcement agencies involved, and names of insurance companies for those in the crash. The additional details are an attempt to combat fraud from people who try to stage accidents in hopes of collecting insurance money.

The hospitals counted this year's battle over PIP as a major legislative victory since they avoided a cap on reimbursements in the manner of Medicare, Medicaid, workers' comp, and group health plans. Bill Bell, general counsel of the Florida Hospital Association, said the no-fault system that requires motorists to buy $10,000 worth of PIP coverage is sometimes the only money hospitals get when they treat patients in auto accidents. He added that emergency room costs have become a drain on hospitals because so many people who go there have no health insurance and the hospitals are bound by federal law to screen and treat everyone regardless of ability to pay. “Without PIP, hospitals many times would get no payment at all,” Bell said.

The Academy of Florida Trial Lawyers also claimed victory in the auto insurance battle. But the lawyers think the bill will still come back again before October 2007.Glenn Klausman, an academy board member, accused the industry of manufacturing a crisis to help large carriers like State Farm. He said if insurers want to offer lower rates for consumers they should take money out of their profits. “The auto insurance market has never been better,” Klausman said.