Florida Consumer Advocate on PIP: Is it Worth the Cost?

Florida’s automobile no-fault law is in severe need of reform, but the cost of doing so may be more than the benefit, according to the state’s insurance consumer advocate.

Speaking before Florida’s Cabinet, Insurance Consumer Advocate Robin Westcott told state officials that the state’s PIP cost are spiraling out-of-control and there is a real question of how much longer the current system will be sustainable.

Westcott said that insurers’ direct claims’ cost for PIP claims has increased from $1.5 billion in 2008 to $2.3 billion in 2010. Adding on the cost of administrating those claims, insurers paid around $2.7 billion in total costs. That translates into about a $1.50 in costs for every dollar in premium.

Much of that increase is attributable to a steep rise in fraud and PIP cases that have grown from 6,000 to 46,000 in just four years.

As a result, despite the fact that the number of drivers in the state has hovered around 16,000 but the number of accidents has dropped to 1.5 per 100,000, consumers are paying ever increasing rates.

As an example, Westcott noted that State Farm insured families in Tampa with two teenage drivers saw premiums rise from $1,279 in 2008 to $1,997 this year.

“We’re talking $2,000 out of someone’s budget for a $10,000 benefit,” Westcott said.

Chief Financial Officer Jeff Atwater said that given the statistics, the state is facing the choice of either radically reforming the system or seeing fewer companies providing the coverage at higher rates.

“To keep companies here, we are going to have to make this business model work or the insurance commissioner will have no choice but to approve premium increases,” said Atwater.

Westcott floated several proposals, some of which were aimed at getting the industry to fork over more data to see whom insurers are paying and for what services.

She said lawmakers should look at creating an electronic claims paying data base to catch more information so that regulators might identify trends sooner.

In the past, the industry has opposed such proposals, saying the cost of creating such a data base would be prohibitive.

It has also opposed providing such information as litigation expenses even as it pushes for caps on claimant attorneys fees.

Atwater criticized the industry for not being more forthcoming with information.

“They could be tremendously more helpful,” said Atwater of the industry. “This is not just a litigation issue and if they can’t do this it is unfair to place the burden on drivers.”

Westcott noted that while the industry could be more helpful, there are some problems in the health care delivery system that make monitoring PIP claims difficult if not impossible.

One problem is the inability of insurers and regulators to monitor certain health care clinics and the utilization of services they provide.

Lawmakers required most health clinics to register with the state’s Agency for Health Care Administration. However, lawmakers also slipped into the law several exemptions that critics say have been exploited to facilitate generating false claims.

For example, there has been a large growth in the number of exempt massage clinics that cater to PIP victims. Once those clinics are established they are free to hire other providers whose services are not subject to state oversight.

AHCA reports that between 2005 and 2010, the number of such clinics in Miami-Dade increased from 12 to 251 and it is expected to reach over 360 by year’s end. During the same time period, the number of exempt clinics in Hillsborough County increased from 43 to 115.

Westcott said that until the state and the industry have some way of monitoring those clinics and the services they provide, it will be difficult to measure how dollars are flowing through the system. Even then, she said, it will be incumbent on lawmakers to judge the cost-benefit ratio of making those changes.

“We have a dramatic system to police for a $10,000 benefit,” she said.