PIP bill to lower future losses, not current premiums

By Michael Peltier, The News Service of Florida

THE CAPITAL, TALLAHASSEE, August 21, 2012..........A much heralded change to Florida's no-fault automobile insurance law likely won't reduce policyholder premiums but may slow the increase in rates, according to a report released Tuesday by state regulators.

The Office of Insurance Regulation released findings from an analysis of HB 119, passed by lawmakers earlier this year. The new law attempts to reduce costs associated with personal injury protection insurance, or PIP, which provides up to $10,000 in medical coverage regardless of who caused an accident.

The report says the new law, which places restrictions on benefits and makes efforts to curb fraud, is expected to translate into a reduced losses of between 14 and 24.6 percent in the PIP portion of a typical automobile insurance policy. The PIP portion accounts for about 20 percent of policy costs. 

Such reduced losses, however, may not translate into lower automobile insurance premiums because PIP rates are currently inadequate to pay losses and most of the provisions won't go into effect for months.

Still, insurance regulators and the state's insurance consumer watchdog praised the legislation, the benefits of which may not be known for a few years.

“Only time will tell whether the actual savings in PIP loss costs will exceed the estimated savings, but we are optimistic that reforms enacted by the 2012 Florida Legislature will have significant, favorable results for Florida consumers,” said Robin Westcott, Florida insurance consumer advocate.

Lawmakers earlier this year passed the insurance industry-backed measure to stem skyrocketing claims paid under PIP. Between 2006 and 2010, PIP losses increased by 66 percent to $2.5 billion, while the number of claims rose by 28 percent, according to the analysis conducted by Pinnacle Actuarial Resources Inc. 

"The savings shown assume that current rates are adequate," the report noted. "To the extent that current PIP rates are inadequate, it is likely that insurers will offset the savings from HB 119 against the otherwise indicated PIP rates."

By Oct.1, PIP insurers must submit rate filings to the Office of Insurance Regulation with at least a 10 percent rate reduction, or document why they can't. 

Consumers may not see immediate premium benefits because many of the bill's major changes won't kick in until after carriers are required to file for new rates. Most of the law's provisions take effect Jan. 1. 

"While the 2012 PIP legislation delivered the potential to address the fraud and abuse in the PIP system, policymakers, regulators and Florida drivers need to understand that the new PIP law must have adequate time to be implemented and take effect so the new PIP law can achieve its potential," said Donovan Brown, representative of the Property Casualty Insurers Association of America.

Among its major provisions, the law requires clinics treating PIP patients to be licensed, limits payment to chiropractors and prohibits massage therapists and acupuncturists from being reimbursed under the program. PIP claims must also be reported within 14 days of an accident. 

Westcott said the proposed reductions in losses may be conservative.

"It is important to note that historically, past legislative reforms of the workers’ compensation and medical malpractice systems required independent actuarial studies that significantly under-estimated the reduction in loss costs that were actually realized," Westcott said in a statement."

Meanwhile, Florida Chief Financial Officer Jeff Atwater, said analysis results were encouraging and hoped that policyholders would see some relief.

“I am eager to see these projected savings, if not more significant savings, passed on to Florida’s insurance consumers," Atwater said in a statement. "Florida’s drivers deserve to see the full impact of these policy changes through lower auto insurance rates.”