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Commentary: Proposed Florida PIP Repeal a Bad Deal for Consumers, Industry

While the intent may be good, a bill currently under consideration by the Florida Legislature will be disastrous for the state’s auto insurance market.

The specific legislation being weighed by lawmakers is CS/SB 54. This bill proposes to eliminate personal injury protection (PIP) coverage, require mandatory bodily injury (BI) limits of $25,000 per person and $50,000 per accident and require optional medical payments (MED) coverage of $5,000 and/or $10,000.

Regardless of the spin by some, this legislation will raise the price of auto insurance for Floridians and place a higher burden on the people who can least afford it. It will also disproportionally impact minorities. All of this comes at a time when many people are being economically impacted by COVID.

While this is my opinion, I have been managing auto insurance programs and/or companies in Florida since 1999 and am intimately familiar with the rate setting process and requirements, as well as the claims and litigation environment/challenges in the state.

Mandatory BI Coverage

There are two issues associated with the proposal to require all policies carry BI with limits of at least $25,000/$50,000. The first issue is bad faith. Mandatory BI without real tort reform will result in much of the PIP fraud/litigation moving over to efforts to set up carriers for bad faith claims. The current case law is why Florida has previously been labeled as a “judicial hellhole.” More BI (i.e. 100% of the policies) means more bad faith litigation.

The second, and more concerning issue is that this will force a large number of citizens to buy coverage that they may not need and do not buy today. I specialize in a segment of the market referred to as non-standard auto (NSA). Non-standard auto programs focus on serving the risks not acceptable to the traditional auto programs. These risks present higher loss frequency and thus higher rates.

So why do people end up in non-standard programs? A common misconception is that it is driving record or claims history. That can certainly be a reason, but it is not the primary reason. In fact, about 80% of the risks we insure have no driving record points. The primary reason an insured becomes “non-standard” is credit-related – a combination of poor credit and a history of lapses in their coverage. The majority of our customers are financially challenged and are minorities.

This is important because more than 80% of non-standard auto customers do not purchase BI at all. They either feel they have nothing to protect or, more likely, can’t afford the extra cost. For the 20% who do purchase BI, they are only purchasing the minimum limits of $10,000/$20,000.

This legislation will require 80% of the non-standard customers to buy coverage they don’t want/can’t afford and will increase rates for 100% of them due to the higher limits. This increase will be somewhere around $1,000 per year for the 80% who currently don’t opt for this coverage.

Also included in this flawed legislation is the most illogical and confusing stipulation I have ever seen – carriers would be required to cover liability losses for unlisted household residents driving any car, whether they are listed on the policy or not. How can an insurance company price for a risk of unknown exposure? No state has anything similar to this, frankly, ludicrous language. This language is also a bad faith setup by the trial bar. The bill contains no real tort reform in a state that has been labeled as a “judicial hellhole.”

Take this example: A multi-generational household with a mother, father and adult son and daughter who live together. Mom and dad own two vehicles with their own insurance policy. The adult son owns his own car and has his own policy, as does the daughter. One household with three policies. Let’s say the son has an unfortunate and significant at-fault accident in his car, which insurance policy applies?

According to the legislation as written they would all apply. Are the limits stacked? The legislation is silent to that which means this will head to litigation and bad faith. If not stacked, which policy is primary, which is secondary and which is final? This is a claims handling and a pricing nightmare for carriers as written and sets them up for bad faith suits. Carriers will shy away from insuring multi-generational family households.

PIP vs MED

It is no secret there is a long history of fraud and problems with PIP. What I will discuss is how current PIP statutes mean changing to MED would actually be more expensive for drivers.

For the last 15 or so years, many statutory reforms have been implemented (specific to PIP) which were designed to help carriers fight fraud and reduce litigation.

Key of these are:

• Statutory requirement to submit to an “Examination Under Oath” as a condition precedent to coverage enacted back in 2012. Why is this important? When a carrier gets information, which indicates that the insured may have either committed material misrepresentation on their application or that some, or all, of the claim is fraud, the person needs to be questioned under oath as part of the investigation. It is important to have this examination under oath if the carrier denies some, or all, of the claim because the EUO is admissible in court. Recorded statements are not admissible, and by the time the case goes court the person could be hard to find and/or has been coached, which is a disadvantage to carriers.
• The 2012 legislation enabled carriers to apply the Medicare Part B fee schedule to billed modalities. Prior to the legislation, medical providers were able to bill whatever amount they wanted and the carriers had to battle in court based on “usual, customary and reasonable” to determine to proper reimbursement amount. With one-way attorney fees, this is very expensive and clogs the courts.
• Pre-suit demand requirement for PIP. Before initiating litigation, carriers are required to receive a pre-suit demand within 30-days to decide whether to pay or stand their ground. This is very important in reducing unnecessary lawsuits.

The current MED proposal has none of these protections. As proposed, MED at a $10,000 limit will be more expensive than the current PIP coverage of $10,000. It is likely that a $5,000 limit for MED will end up being about as expensive as the current $10,000 PIP limit.

Here are some examples of why this will be the case:

• Without EUOs, companies will reduce utilization of material misrepresentation and challenges to fraudulent claims. Again, recorded statements are not admissible and claimants/insureds can be hard to find in the years it takes to get to court. Paying these claims leads to higher rates for honest citizens.
• Without the fee schedule, companies will be attacked no matter how they handle exaggerated bills. If the company receives an MRI bill for $4,000 and says it should only be $600, the MRI provider will sue. If the company pays the $4,000 for the MRI and exhausts limits on other bills the providers later in the billing will sue for improper exhaustion saying the carrier overpaid for the MRI thus shorting their client.
• Without the pre-suit demand requirement, carriers lose an important protection to reassess the claim. This includes reviewing new case law and looking for human error. An example is that a claims adjuster paid $235.29 instead of $235.92 – a simple human error. But with the pre-suit demand, the carrier can revise the payment plus add amounts for interest, penalty and postage. If it goes straight to suit, the carrier will owe that same amount plus somewhere around $4,000 in attorney fees.
• As an optional coverage, many of the poorer households will opt to forgo this coverage. This has two effects. Most importantly, for insureds who opt out of this coverage due to cost, they will have no coverage for medical bills when involved in an at-fault accident. This will lead to people not seeking needed treatment and hospitals not having a reliable source of remuneration for services provided in these cases. The second effect will be an escalating price. As risks opt out, price fraud becomes more prevalent. “The only people who buy the very expensive coverage are people intent to use it.” This will lead to the rates going ever higher and furthering the cycle of fewer and fewer people participating. People for whom today, PIP is their only form of health insurance.

These examples show that MED will require higher rates than PIP for the same limits. While I have not done an actuarial review, in my 30 years of experience, I believe that $5,000 of MED will cost as much – if not more than – than the current price for $10,000 of PIP.

I applaud the Florida Legislature for their intent to lower insurance premiums for consumers, but they have ignored the feedback they have gotten from insurance carriers. What does it say when numerous injury attorneys are siding with insurance carriers? We never agree, but in this case we do.

Because the non-standard auto market is largely populated with people of limited means, this legislation will place a burden on the people who can least afford it.