Fla. Lawmakers Take Aim at No-Fault Insurance Problem

Aerial shot of Tampa, Fla.Lawmakers and members of the insurance industry have repeatedly called for regulatory changes in states that employ no-fault insurance systems, saying that they are conducive to fraud and abuse and result in higher costs for consumers. In both New York and Florida, state representatives have introduced bills that aim to change aspects of the claims process that will ideally make it harder for residents to exploit the systems.

Drivers in many states may be unfamiliar with no-fault coverage; that’s because Florida is among the small minority of 12 states that use a no-fault system. Most states have liability systems that require drivers to purchase bodily injury liability protection, which pays for other people’s damages that were caused by the policyholder.

But no-fault coverage works differently. Instead of paying for other people’s damages that the policyholder was responsible for, it pays directly to the policyholder for his or her medical bills after an accident, regardless of who was at-fault in the crash.

Florida law has since 1971 required that motorists carry at least $10,000 worth of Personal Injury Protection (PIP), the main form of no-fault insurance that pays for 80 percent of “reasonable” medical expenses and 60 percent of a claimant’s loss of income.

But according to sources like the Insurance Information Institute (III), a number of medical providers in no-fault states exploit the system by using the $10,000-mark as a minimum target. As a result, the average PIP claim paid by auto insurance companies in Florida has been rising in recent years and is now one of the largest in the nation.

The III has said that if the average size of PIP continues to rise, consumers statewide will feel its effects in the form of escalated premiums.

Florida Insurance Fraud GraphThe average claim in the state has risen to about $8,100, according to the III.

To combat this trend, Florida lawmakers are proposing to set more elaborate and stricter schedules for medical expenses.

The bill also proposes to cap attorneys’ fees, to make a more efficient system for resolving disputes between policyholders and insurers and to make it easier for insurers to examine drivers whom they believe may have filed fraudulent claims.

Attorneys fees have been highlighted by the Property Casualty Insurers Association of America (PCI) as a reason for insurers to simply pay possibly fraudulent claims rather than contest them.

According to the PCI, if insurers take a policyholder to court over a claim and lose, they have to pay for its and the policyholder’s attorneys’ fees, which sometimes actually exceed the $10,000 minimum PIP limit. The bill would deter this by capping fee awards at $10,000.

Another provision of the bill would help insurers to investigate fraud by making it easier for them to get statements under oath from claimants. The legislation does this by making compliance with a request for such a statement a requirement in order to be eligible for policy benefits. This means that a claimant who is suspected of fraud and has been asked to give a statement under oath about the accident but refuses would—in most cases—not be able to use their coverage for that specific case.

“House Bill 967 will ultimately help insurers crack down on criminals who continue to keep Florida at the top of the list for the highest number of questionable, or ‘staged,’ auto accidents of any other state in the country,” said William Stander, PCI’s assistant vice president and regional manager for Florida.

The bill is currently still in the early stages of the legislative process. It has received a favorable vote from the Insurance and Banking subcommittee and will now circulate through other committees before going up for a vote in the full house.

About John Pirro
John Pirro is a licensed fire and casualty insurance agent specializing in various aspects of the auto insurance industry. He worked in the auto body repair industry before taking a reporting position at Online Auto Insurance News.

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