The Tallahassee Democrat
By Brent Kallestad
December 20, 2011
Gov. Rick Scott wants lawmakers to fix a pair of auto and property insurance issues that are costing Floridians hundreds of millions of dollars but have eluded resolution for more than a decade.
The issue facing the largest number of Floridians is the rising cost of personal injury protection or PIP coverage that licensed drivers must buy. In some neighborhoods in the Tampa Bay area and South Florida the coverage can add several hundred dollars annually to auto insurance premiums, a cost that’s almost entirely the result of rampant fraud.
Scott, a conservative Republican, also expects lawmakers during their annual session that begins Jan. 10 to somehow reverse the runaway growth of the state-backed Citizens Property Insurance Corp., which was created a decade ago as the insurer of last resort for home and business owners. However, Citizens has mushroomed into the biggest property insurer in Florida with 1.5 million policyholders and doesn’t collect enough in premiums to guarantee that is could pay off if a catastrophic storm hit the state.
While Scott’s predecessors, as well as legislators, have tried to resolve these issues in recent years, the problems remain.
“We were just in an echo chamber here making ourselves feel good by passing bills,” said Sen. Don Gaetz, a Niceville Republican slated to become that body’s next president.
And the prospect of making gains on either insurance measure, much less both, is uncertain again as lawmakers concentrate on approving new political boundaries during the session before cranking up their re-election campaigns.
“I hope we can make progress on both, but it’s too soon to tell,” House Speaker Dean Cannon said in a pre-session interview. He points out that fixing the Citizens problem would likely result in higher premiums, at least in the short term, something legislators don’t want to do as the state suffers from a down economy and 10 percent unemployment rate.
Both PIP and Citizens began with the best intentions — to make sure anyone injured in an auto accident would quickly get money to treat their injuries and to make sure that property owners in areas especially susceptible to hurricanes could get coverage. But both have turned into annual headaches for the Legislature, where competing interests have made resolution difficult.
Under PIP, which was adopted in 1972, a driver’s own insurance company pays up to $10,000 to cover medical bills and lost wages after an accident, no matter who is at fault. But it has been fraught with fraud, with schemers turning Florida into the No. 1 state for staged accidents.
The Insurance Information Institute predicts that fraud could approach $1 billion in the state this year — costs that are passed on to customers. Lawmakers have even heard testimony that organized crime is involved in some areas of the state in the high-stakes swindles. Florida is one of only a dozen states that require PIP insurance.
“These excessive costs are levied on those who can afford them the least,” said state Rep. Jim Boyd, a Bradenton Republican and insurance agent who sits on the House Banking and Insurance subcommittee. “It’s costing our taxpayers and our citizens and our friends and neighbors a lot of money every year.”
U.S. Sen. Bill Nelson tried to clamp down on PIP fraud as long ago as 15 years ago during the time he served as Florida treasurer and insurance commissioner.
“It’s been so hard to fix the problem in Florida because of the influence of special interests,” Nelson told The Associated Press. “You’ve always had trial lawyers versus the insurance companies, plus health-care providers trying to get at least some of their costs covered in car injuries.”
State Sen. Ellyn Bogdanoff, R-Fort Lauderdale, apologized at a legislative committee meeting earlier this year for not solving the problem in 2007 when a bill she shepherded while in the House inadvertently led to increased fraudulent activity as questionable claims involving staged accidents increased 58 percent between 2008 and 2009. The Insurance Research Group also found that one-third of all no-fault claims closed in 2007 involved overbilling or excessive use of medical services.
“We messed up,” Bogdanoff said. “We need to fix it.”
She believes that keeping PIP in its existing form amounts to a legislative endorsement of fraud and some lawmakers would just like to kill it — Rep. Mike Horner, R-Kissimmee, filed a bill to repeal the law effective July 1, 2014. Many people already have health and disability insurance that would cover their losses, although the first $10,000 would not be covered in a basic health policy in Florida since PIP would pay it.
Sen. Joe Negron, R-Stuart, agrees with his colleague on many concerns about PIP, but believes changes are needed to ensure that insurance companies pay legitimate claims in a timely manner.
“Let’s not go to the other extreme and act like every person involved in an auto accident is a potential crook,” Negron said.
Lawmakers thought they might have had a solution in 2006, but former Gov. Jeb Bush vetoed it. Bush believed any changes should include limits on the number of doctor visits permitted and on charges by doctors, hospitals and lawyers.
Lawmakers did allow for more than 11.3 million licensed drivers in Florida to have an option on buying PIP in the 2007 session, but after just three months it was required again.
The Citizens property insurance problem is just as complex. The state-backed insurer is supposed to be getting smaller, but instead has been adding customers at the rate of 30,000 a month.
Scott wants Citizens shrunk because of fears the insurer would suffer massive losses if a big hurricane hits. Unlike private companies, Citizens has the power to place a surcharge on nearly every insurance bill in the state if it can’t cover such losses. Although industry estimates vary somewhat, Citizens could pay roughly $20 billion, including $6.5 billion from the Florida Hurricane Catastrophe fund, before assessing policyholders. That would be a pittance if a Category 4 or 5 hurricane hit a major metropolitan area.
The company was created by the Legislature in 2002 to provide coverage for businesses and homeowners in high-risk areas and those who cannot afford coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew, a Category 5 storm that devastated Homestead and other towns south of Miami in August 1992. It caused more than $20 billion in damage in the state.
The state hasn’t been hit with a hurricane since getting hit with eight in 2004 and 2005 — a six-year run that’s unprecedented since records began more than a century ago — but the Legislature hasn’t been able to use the lull to fix the system.
“They’ve begun to right the ship, but we may be running out of time,” said Sam Miller, vice president of the Florida Insurance Council. “We’ve still got crises with Citizens growing by a thousand policies a day and the CAT fund still can’t totally pay off all of its claims. We’ve got to hurry and take the steps that would make a critical difference.”
