Insurers Guarded About Florida Report’s PIP Savings Estimates

A third-party report released by Florida insurance regulators Tuesday estimated that insurers’ cost savings from changes to the state’s no-fault laws will be between 14 and 24.6 percent, but insurers remain guarded about the full impact of the legislative overhaul that goes into full effect at the beginning of next year.

The latest estimate from Pinnacle Actuarial Resources is higher than previous figures from the organization, which in a preliminary report released weeks ago pegged the state’s premium cost savings to personal injury protection (PIP) coverage at 12 to 20 percent.

The latest estimates are the first firm savings projections. The Florida Office of Insurance Regulation (FOIR) shied away from releasing such numbers during this year’s contentious debate over PIP reform, and cautioned that the third-party report had significant caveats.

The FOIR asked readers of the analysis to keep in mind the following:

–The savings indicated are not savings on the actual premiums that insurers will charge.

–The savings are only for the PIP portion of a policy, which accounts for about a fifth of overall policy costs.

–The indicated savings may only cancel out what would have been premium increases.

–The earliest savings could be realized in the first of the year in 2013.

Lawmakers Battled Before Passing Reform Measures

This past spring’s legislative session was a battleground for lawmakers pushing reform of PIP coverage within the state’s no-fault insurance system, which pays out for injury claims regardless of who was at fault for the crash.

Gov. Rick Scott, who championed reforming the state’s no-fault insurance system as a major campaign issue, said it would put a major dent into the number of illegitimate claims that would have, without the reform measure, cost $1 billion to state residents who buy car insurance in Florida.

But in the latest report, estimates of cost savings come mainly from the reform package’s mandated limitations on PIP coverage, while anti-abuse provisions introduced by lawmakers yield much fewer.

The final reform package included the following major changes, with the potential savings forecasted in the report:

–Change minimum coverage for medical treatment from a flat $10,000 minimum limit to providing up to $10,000 for “emergency medical conditions” but only $2,500 for non-emergency medical conditions. (Projected savings: 9.8 to 14.7 percent)

–Eliminate massage therapy and acupuncture as types of treatment eligible for PIP compensation. (6.9 to 10.4 percent)

–Establish strike force to combat insurance crimes. (0.5 to 2 percent)

–Require initial medical treatment to occur within 14 days of a crash to be eligible for coverage. (0 to 1.5 percent)

–Require more information on police crash reports. (0 to 1.5 percent)

According to the new law, insurers’ rate filings will reflect a 10 percent premium cut by October 2012 and 25 percent by January 2014. Those who don’t are required to state why they couldn’t make the cuts.

The report estimated that some of the reform package’s anti-abuse measures wouldn’t have any cost savings impact at all, including reporting to regulators all denied claims found to be phony and suspending medical licenses of those convicted for PIP-related crimes. One hurdle to making these projections, though, was the lack of sound data.

Changes to Medical Coverage

The biggest change—and the one that is projected to bring the biggest savings—will be reducing non-emergency medical treatment to $2,500.

Although Pinnacle was reliant on data that didn’t clearly separate emergency from non-emergency medical treatment, their projections showed that only about 3.3 percent of non-emergency medical treatment claims are below the $2,500 threshold. So according to their calculations, the vast majority of non-emergency treatment would have to come out of consumers’ pockets.

According to Pinnacle’s analysis, “30 percent of medical payments would be considered non-emergencies.”

As for cutting out massage and acupuncture treatment, Pinnacle said it would have forecast a higher maximum savings, but they expect there to be “leakage” through which not all forms of massage therapy will be removed from the system. As a result, they dropped their maximum potential savings from 13.9 percent down to 10 percent.

Insurers Caution Against Conclusions

Savings from the reforms would at the absolute earliest kick in for new and renewal policies dated on or after Jan. 1, 2013. According to the report, “for many policies the savings will not be realized until July 1, 2013 or later.”

Insurers also encouraged the state’s insurance industry, lawmakers and policyholders to wait until the reform package plays out to discern its full impact and the savings it will produce.

“The study cannot anticipate changes to Florida’s legal, social or economic environment, which will directly influence the impact of the new PIP law,” said Donovan Brown, counsel for the Property Casualty Insurers Association of America (PCI), in a statement. “As with any comprehensive legislative package, there will be implementation processes and other issues that must be addressed in order for the PIP law to attempt to stabilize our auto insurance market.”

Possible Reform Pitfalls

The report predicted that the change to emergency medical claims will bring a spike in court cases, especially from claimants questioning what defines an emergency condition eligible for PIP reimbursements.

The new law defines an emergency medical condition as “a medical condition manifesting itself by acute symptoms of sufficient severity that the absence of immediate medical attention could reasonably be expected to result in serious jeopardy to patient health, serious impairment to bodily functions or serious dysfunction of a body organ or part.”

The report also found instances in which health care professionals have already begun advertising that they can document an injury as an emergency condition eligible for the full $10,000 PIP reimbursement. Such developments show that it is impossible to “calculate the scope” of challenges to the reforms and in what ways “corrupt providers” will try to “game the system,” according to Brown.

Insurers were being inundated with PIP-related litigation even before the reform package’s passage. The report found that, from 2006 until the end of 2010, the number of pending PIP-related lawsuits in which the insurer was the defendant shot up 387 percent while the number of settled lawsuits increased 315 percent.

As a part of the reform package, FOIR was required to commission the report and release its findings to the Legislature by Sept. 15, but regulators said they wanted to publish the report earlier to “allow companies time to consider these findings” prior to Oct. 1., when insurance carriers will make their first PIP filings since the reform measures passed.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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