Florida Insurance Commissioner Kevin McCarty to Florida Cabinet: Insurers Don’t Have Enough Tools to Combat Personal Injury Protection (PIP) Fraud
Aug 16, 2011
While sitting as the Financial Services Commission, during its meeting this morning, August 16, 2011, the Florida Cabinet approved the adoption of amendments to proposed Rule 690-137.001, which adopts the National Association of Insurance Commissioners’ most up-to-date forms for annual and quarterly insurer financial reporting requirements.
The Cabinet then heard a presentation relating to Personal Injury Protection (“PIP”) fraud by Florida Insurance Commissioner Kevin McCarty. The presentation, a copy of which can be viewed by clicking here, provided data indicating that PIP lawsuits have increased by 70 percent since 2008. Over the same period, PIP benefits paid also increased by 70 percent to $2.3 billion, even though the number of motor vehicle drivers and number of accidents in Florida have remained steady. The totality of the data led both Commissioner McCarty and Florida Attorney General Pam Bondi to blame the increases in PIP lawsuits and PIP benefit payments to fraud and abuse in the system.
Commissioner McCarty then presented data demonstrating the dramatic increase in the rates paid by drivers in Florida for PIP coverage. He provided additional data indicating that Floridians pay more per $1,000 in PIP coverage than drivers do in any other state in which PIP coverage is available.
Driving PIP rates, he said, are the direct loss ratio and combined loss ratio. The direct loss ratio for PIP in Florida was 100 percent in 2010. The combined loss ratio in Florida for PIP in 2010 was 140 percent. The increased loss ratios resulted in a 40 percent increase in PIP premiums from 2008 through 2010.
Commissioner McCarty suggested that, to combat these statistics, insurers must either raise their rates or leave the State. Florida Governor Rick Scott asked what the insurance companies are paying out in claims, considering PIP coverage is capped at $10,000. Commissioner McCarty indicated that unreasonably high attorneys’ fees, along with the contingency risk multiplier and unreasonable demand deadlines are driving these losses.
The Commissioner then provided examples of increases in PIP rates. In Miami, PIP premiums have increased by 80 percent for unmarried 40 year-old females and almost 85 percent for unmarried 25 year-old males since 2005. In an effort to show that PIP fraud is not just a South Florida problem, Commissioner McCarty provided data that demonstrated that, since 2005, PIP rates in Tampa have increased by 101 percent for unmarried 40 year-old females and 85 percent for unmarried 25 year-old males.
He further suggested that the Florida Legislature has attempted to be aggressive in addressing this issue, but the PIP criminals are sophisticated, innovative, and have been able to find weakness in the system at every turn. Since 2005, fraud referrals to the Florida Department of Financial Services have doubled. PIP premiums represent about 2 percent of the total insurance premiums paid in Florida, but 50 percent of all insurance fraud referrals. As a possible component of an overall solution to fraud in the PIP system, Commissioner McCarty referred to the workers’ compensation system of a fee schedule and utilization controls.
Florida Chief Financial Officer Jeff Atwater asked Commissioner McCarty if PIP fraud was forcing insurance companies to decide between increasing PIP rates or leaving the State. The Commissioner said that is the exact choice that is made. He also made the interesting comment that, as PIP premiums approach $1,000, insurers consider whether selling $10,000 in benefits for a price of $1,000 is a viable product. The CFO also asked if the Florida Office of Insurance Regulation (“OIR”) evaluates insurers’ fraud prevention measures.
The Commissioner indicated that the OIR does indeed look at an insurance company’s fraud prevention measures, however, fraudsters are too sophisticated and insurers don’t have enough tools to fight them under the law.
The CFO asked the Governor to press the Florida Legislature to take action on PIP reform. The Governor then asked if the increases in PIP premiums could be characterized fairly as an $800 million tax on Floridians, to which Commissioner McCarty answered “yes.”
To view the complete OIR materials from today’s meeting, click here.
To view the entire Cabinet agenda, click here.
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