Florida Automobile Joint Underwriting Association Board of Governors Meeting Report: September 15

The Florida Automobile Joint Underwriting Association (“FAJUA”) Board of Governors (“Board”) met in Tampa on September 15, 2009.

Chairman Brian Fleming opened the meeting by introducing the newest FAJUA Board Member, John Tomlin from AAA Auto Club South, who was appointed by Florida Chief Financial Officer Alex Sink.

The following items were discussed during the meeting.

 

Post-Retirement Employee Benefit Plan

Details of the FAJUA post-retirement employee benefit plan, which closely mirrors that of the Automobile Insurance Plan Service Office, have been finalized.

 

Service Provider Contracts

Contracts with two of the FAJUA’s service providers will expire at the end of September.  Because the number of FAJUA policies is decreasing, both companies–one is a third-party claims administrator and the other is a policy administrator–have voluntarily agreed to reduce their billings.  Thus, the Board unanimously approved an extension of both contracts.

 

Fraud Prosecution Program

The FAJUA provides $150,000 per year to the State of Florida for the funding of two full-time personal injury protection (“PIP”) fraud prosecutors based in Miami-Dade County.   Currently, seven state-funded PIP fraud prosecutors operate throughout Florida. 

This year, the Miami-Dade County State Attorney’s Office informed the FAJUA that the additional funding is not needed.  Therefore, the FAJUA is considering using the funds to hire prosecutors in Orange or Palm Beach County.  Since the PIP fraud prosecution program has been so effective, the Florida Legislature has approved funding for two workers’ compensation fraud prosecutors.

 

Legislative Update

During Florida’s 2009 Legislative Session, a bill was passed prohibiting local governments from charging accident response fees, as well as another that allows law enforcement officers to cite drivers for not wearing a seatbelt.  New laws also effected fee increases for vehicle reports, licenses and registrations.

It is anticipated that the multi-year process to overhaul Florida’s bad faith laws will begin during the 2010 Legislative Session. 

Statewide authorization for the use of red light cameras is expected to be addressed during next year’s Session as well.  Many cities already have installed red light cameras on city and county roads.  Automobile insurers support statewide red light camera legislation because it is expected to result in a decreased number of traffic accidents.

A claims bill involving a $30 million claims settlement against the Broward County Sherriff’s Office is expected to be considered during the 2010 Session.  This bill was considered last year, but ultimately did not pass because of a provision alleging bad faith on behalf of the insurer.  The FAJUA and insurers are working to remove that provision from next year’s version of the bill, since it would set an unfavorable precedent. 

 

Financial Information

As of July 2009, the FAJUA had four private vehicle policies and 231 commercial automobile policies in force.  Premium statements were mailed in July and $1.8 million has been collected so far, with $112,000 outstanding. 

The FAJUA budget has decreased approximately six percent from last year, due to a static staff pay rate and reductions in operating costs, the latter of which has included: 

• Legal, audit and central processing fees;
• Director and officer insurance policies;
• Rent;
• Travel expenses;
• Office supplies; and
• Accounting and Web site maintenance consulting fees.

The Board approved the 2010 budget with no discussion.

On average, FAJUA investments in Florida’s Special Purpose Investment Account (“SPIA”) are earning 2.5 percent, which was judged by the FAJUA Financial/Audit Committee to be sufficient.  All surplus FAJUA funds will continue to be invested in the SPIA.

During the Board’s most recent meeting, it was determined that, due to decreasing premium volume, an $8 million assessment would have to be levied against FAJUA member companies by the end of 2009.  According to FAJUA Financial/Audit Committee Chairman Kevin Leeman, that anticipated assessment has been decreased to $6.2 million.

 

FAJUA Rate Examinations

At the request of Florida Insurance Commissioner Kevin McCarty, the FAJUA recently examined its rates.  By law, the FAJUA is required to use the latest statistical data in rate examinations, which presents a problem because of the decreased number of policies in force and corresponding amount of available data.  FAJUA Staff is in the process of meeting with the Florida Office of Insurance Regulation (“OIR”) to discuss alternative data sources. 

Private Passenger Rates

Last year, the FAJUA private passenger rates decreased by 9.4 percent.  Since only four private passenger policies are currently in force, FAJUA Staff has changed the market comparisons used to determine rates from a “Platinum A” to “Silver G” risk comparison, which better describes the average FAJUA policyholder. 

For example, a “Silver G” risk policy covers a married 40-year-old couple with proof of insurance only available for the prior year and a 40-day lapse prior to that.  During the previous year, the policy allows the male driver to have had one minor traffic violation and one at-fault accident.

Based on this market comparison, FAJUA Staff has determined that the FAJUA private passenger policy rates should be 50 percent above those of non-standard private market insurance writers.  In response, the Board approved an 11 percent overall rate decrease with a 2.5 percent variation to account for higher private market rates in Miami-Dade County.

Commercial Rates

Due to decreasing FAJUA policy volume, the methodology for determining commercial policy rates has been revised as well.  All sub-lines have been combined and an indication has been calculated for each coverage type.  Indications were then credibility-weighted with the results of a loss cost multiplier analysis.

Even though all sub-lines have been combined, the rating indications are still less than 50 percent credible.  If policy volume continues to decline, a benchmarking approach will need to replace ratemaking based on actual FAJUA policyholder experience. 

The indicated rate change with this new methodology is 8 percent with a 2.5 percent leeway.  The Board unanimously approved a 10 percent rate increase for commercial policies.

 

Policy Payment Plan

As recent studies have asserted, Florida has one of the highest rates of uninsured drivers in the country.  As the automobile insurer of last resort, the FAJUA’s rates are significantly higher than those of the private market with some rates as high as 200 percent over those in the non-standard private market. 

At this time, the FAJUA does not accept partial payments.  A payment plan had been offered in the past, but was discontinued due to a large influx of policies and PIP fraud.  Since the FAJUA policy count is so low and Florida has so many uninsured drivers, payment plans are being reconsidered. 

During discussion, concern was expressed regarding the following issues:

• Fraud resulting from applicants paying a policy down payment and then making a PIP claim before the check is cashed; and
• The reduction in the payment amount may make the FAJUA more susceptible to fraud.

Concern also was expressed that, by not offering a payment plan, the FAJUA may not be meeting its statutory requirements.

It was determined that FAJUA Staff will examine the issue further and provide a report to the Board at its next meeting.

The meeting was then adjourned.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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