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Florida No-Fault Auto Insurance:

A Historical Primer

Auto Insurance Fraud Strike Force

Board Meeting

Tallahassee, FL

January 24, 2013

Download at www.iii.org/presentations

Lynne McChristian, Florida Representative

Insurance Information Institute  110 William Street  New York, NY 10038

No-Fault Defined

 No-fault is also called Personal Injury Protection (PIP).

 Statute* requires owners or registrants of motor vehicles to

purchase $10,000 of PIP insurance to compensate them for

injuries in car crashes – no matter who is at fault.

 Drivers also required to have a minimum $10,000 in property

damage liability insurance.

 Its primary principle is to pay economic damages, such as

medical, disability (lost wages) and death benefits, while

limiting the right to sue for non-economic damages, such as

pain and suffering.

 The intent is to be quick, fair and efficient.

*Florida Statute 627.730-627.7405.

No-fault Objectives

 Objectives according to a Florida Supreme Court

Case* are to:

• Directly compensate injured persons by their own insurer to

avoid “possibility of swelling the public relief rolls,”

• Lessen court congestion and limit the number of lawsuits,

• End inequities of recovery under the traditional tort system,

and

• Lower auto insurance premiums.

* Lasky v. State Farm Insurance Co., 296 So2d 9, 14 (Fla 1974).

Variations of No-Fault Coverage

No-Fault describes a number of systems allowing policyholders to recover

financial losses from their own insurer, regardless of fault.

 Verbal Threshold states provide a descriptive on the severity of

an injury before one can sue for damages.

Florida, Michigan, New Jersey, New York and Pennsylvania.

 Monetary Threshold expresses severity of injuries in the dollar

amounts of medial bills.

Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North

Dakota, Utah.

 Choice No-Fault gives drivers the option of a verbal threshold or

traditional tort liability system.

 New Jersey, Pennsylvania, Kentucky

Florida’s No-Fault Threshold

Policyholders can sue for non-economic damages (pain

and suffering) if certain criteria are met.

 Threshold: Significant or permanent loss of an important

bodily function, permanent injury within a reasonable degree of

medial probability, significant/permanent scarring or

disfigurement or death.

PIP Historical Timeline

 1972 – Florida becomes second state to adopt a no-fault auto

insurance plan. Passed in 1971, effective Jan. 1,1972.

 Provided for 100% of necessary medical expenses up to $5,000,

85% of lost wages and funeral expenses not to exceed $1,000.

 Also required minimum coverage requirements under state

Financial Responsibility Law ($10,000 bodily injury coverage and

$5,000 property damage liability).

 1974 – Objectives clarified in Lasky v. State Farm.

 1976 – Legislature replaced the “dollar threshold” with “verbal

threshold” and specified injured persons could sue only if they

suffered a significant injury.

AND…..

1970s

Source: Senate Report 2006-102, Nov. 2005.

PIP Historical Timeline

 1977 – Legislature eliminates mandatory liability coverage for

bodily injury and property damage that were enacted in 1971.

 Reduced PIP benefit to 80% of medical expenses and 60% of lost

wages; increased PIP deductibles.

 1978 – Legislature tightens verbal threshold language by

eliminating right to sue for certain serious, but nonpermanent

injuries .

 PIP benefit raised to $10,000, effective Jan. 1, 1979.

1970s (continued)

Source: Senate report 2006-102, Nov. 2005.

PIP Historical Timeline

 1982 – Funeral benefits increased from $1,000 to $1,750; PIP

deductibles options reduced to $250, $500, $1,000 and

$2,000.

 1988 – “Motor Vehicle Insurance Act” enhanced the

enforcement of PIP laws and the Financial Responsibility Law.

 Enhanced enforcement of compulsory motor vehicle laws to

address statewide problem of uninsured drivers. Also mandated

that drivers obtain $10,000 minimum for property damage liability.

 Funeral benefits increased to $5,000 and renamed death benefits.

Source: Florida’s Motor Vehicle No-Fault Law, Report 2006-102, Nov. 2005.

1980s

PIP Historical Timeline

 1991 – Insurers allowed to provide an option to insured to use

preferred providers for medical benefits.

 1993 – Legislature repealed a provision that required a jury to

deduct from its verdict the value of benefits received by the

injured person from any other collateral source.

 1994 – An act passed that put insurers in violation of the

Insurance Code for failing to provide timely benefits to

policyholders.

 1998 – Provisions added to provide 30- and 60-day billing

limits, standardized medical statements and codes, revised

geographical requirements for independent medical

examinations of claimants.

AND…..

Sources: Review of Florida’s No-Fault Automobile Insurance Law, House Insurance Committee, Feb. 2006

1990s

PIP Historical Timeline

 1999 – Legislature allowed policyholders to elect a deductible

amount to combine with wage loss benefits exclusions in

exchange for lower premiums.

 1999 – Grand Jury begins looking into organized criminal

activity in Florida, including PIP fraud.

Sources: Review of Florida’s No-Fault Automobile Insurance Law, House Insurance Committee, Feb. 2006.

Florida’s Motor Vehicle No-Fault Law, Report 2006-12,,

1990s (continued)

PIP Historical Timeline

 2001 – Legislature adopts all the Grand Jury’s

recommendations, except one about adopting a medical fee

schedule:

 Summary: Required licensure of certain health care clinics,

defined “medically necessary” services, limited access to crash

reports, required insurers to specify why claims were reduced,

omitted or denied.

 2003 – Law strengthened to regulate health care clinics,

regulated how PIP providers bill for services, deleted the

option for a $2,000 PIP deductible, created and strenghtend

criminal penalties for PIP fraud.

 Repealed the no-fault law effective Oct. 1, 2007, absent

legislative action.

AND….

Sources: Review of Florida’s No-Fault Automobile Insurance Law, House Insurance Committee, Feb. 2006

2000s

PIP Historical Timeline

 2007 – No-fault sunsets Oct. 1, 2007.

• For three months (Oct.-Dec.), Florida operated under a “fault-

based” system that held drivers responsible for the injuries they

caused.

 2008 – No-fault reenacted on Jan. 1, 2008.

 Changes included adding a medical fee schedule for PIP benefits,

limits on the health care providers who could receive

reimbursement, required insurers to reserve $5,000 of benefits for

30 days for physicians providing emergency care.

2000s

Source: Florida Insurance Council, Senate Summary of Final Bill, Oct. 6, 2007.

PIP Historical Timeline

 2011 – Office of Insurance Regulation releases report on no-

fault system.

 Summary: Shows PIP payouts increased 66% from 2006-2010,

while the number of drivers and traffic crashes with injury

declined; PIP litigation increased by 387%; Florida charges for

medical provider services were 50% above the national average.

 2012 – Insurance Consumer Advocate convenes PIP Working

Group.

 Report concludes there is no denying “continued and escalating

problem with PIP fraud.”

 2012 – HB 119 passes to address fraud issues.

 2013 – HB 119 reforms launch Jan. 1.

Sources: Florida Motor Vehicle No-Fault Insurance, Insurance Consumer Advocate, Dec. 2011;

2011 Personal Injury Protection Data Call, Florida Office of Insurance Regulation, April 11, 2011.

2010s

HB 119 Provisions

 PIP coverage still provides $10,000 in medical benefits.

 For medical emergencies defined as experiencing severe

enough symptoms that the absence of immediate medical

treatment could result in impairment to health.

 Treatment providers defined as ambulance, hospital,

physician, dentist, supervised physician’s assistant or

advanced registered nurse practioner.

 Non-emergency treatment is limited to $2,500.

 Treatment can be received from any medical provider,

except a massage therapist or acupuncturist.

HB 119 Provisions (continued)

 Insurers will maintain a benefit log for each PIP claim and

notify claimants within 15 days if policy limits have been

reached.

 Insurers can ask policyholders to take an examination

under oath and have an independent medical

examination.

 If lawsuit filed, attorney fees must comply with prevailing

professional standards.

Increase in No-Fault Claim Severity:

Selected States, 2004-2012*

*2012 figure is for the 4 quarters ending 2012:Q2.

Sources: Insurance Information Institute research from ISO/PCI Fast Track data.

$44,138

$17,570

$10,005

$8,227

$5,871

$6,674

$12,136

$24,385

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

Michigan New Jersey Florida New York

2004 2012*

Michigan’s average no-fault claim cost is up by more than 80% since 2004

+81.0%

+44.8%

+49.9%

+40.1%

Florida Average No-Fault Claim

Severity, 2012:Q3*

$6,697

$6,682

$6,681

$7,515

$7,667

$7,704

$7,838

$8,137

$8,313

$8,549

$9,108

$9,478

$9,804

$10,005

$9,569

$6,558

$7,098

$7,231

$7,427

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

08:Q1

08;Q2

08:Q3

08:Q4

09:Q1

09:Q2

09:Q3

09:Q4

10:Q1

10:Q2

10:Q3

10:Q4

11:Q1

11:Q2

11:Q3

11:Q4

12:Q1

12:Q2

12:Q3

The Average Cost of No-Fault Claims in Florida Has Risen

Rapidly in Recent Years

*Average of the four quarters ending 2012:Q3.

Source: ISO/PCI Fast Track data; Insurance Information Institute.

No-fault claim severity (average

cost per claim) between

2008:Q1 and 2012:Q3 is up

46.2%. No-fault fraud and

abuse are the main drivers.

Insurance Fraud, Florida #1

Source: National Insurance Crime Bureau, Dec. 27, 2012. OGA is Organized Group Activity; QC is Questionable Claim.

Insurance Information Institute Online:

www.iii.org

www.InsuringFlorida.org

Contact: Lynne McChristian

Email: lynn[email protected]g

Download at www.iii.org/presentations