As seen in Insurance Journal
By Michael Adams | August 24, 2012
Florida’s new no-fault auto insurance law could result in savings of 14 percent up to as much as 24.6 percent for drivers’ on their personal injury protection premiums, although it remains to be seen whether those savings will reduce their overall insurance costs.
Florida regulators released the final actuarial report on the personal injury protection (PIP) law changes enacted earlier this year. A draft version of the report on the estimated savings was circulated earlier this month.
Among other things, the reforms give accident victims only 14 days to seek medical treatment following an accident. The new law also provides only $10,000 for emergency injuries and $2,500 for lessor injuries. Additionally, the law calls licensing of medical clinics, establishing a list of approved medical providers that excludes acupuncturists and massage therapists, reducing legal fees, and strengthening anti-fraud provisions.
Pinnacle Actuarial Resources Inc., which was hired by the state to evaluate the new law, reported that those changes and others contained in the law should translate into premium reductions on average between 14 percent and 24.6 percent.
Florida Consumer Advocate Robin Westcott acknowledged that it will take time to see exactly how the new law will affect costs as it changes the behavior of drivers, health care providers, lawyers and those looking to take advantage of the system.
For example, Pinnacle estimated that by creating two classes of injuries — emergency injuries that receive $10,000 in benefits and non-emergency injuries that receive only $2,500 in benefits — the law should reduce costs by 14.7 percent. Similarly the exclusion of acupuncturists and massage therapists as PIP health care providers is expected to save 10.4 percent.
Exactly how behaviors may change is unknown. More accident victims may go straight to hospitals or clinics whereas previously they may have waited to see their own doctor. Massage therapists may no longer be providers, but their services may eventually come under chiropractors.
Westcott said she believes the longer the law changes are in effect, the more they will change the system and lower costs. “There is going to be a learning curve and that could have a great impact on rates,” said Westcott. “We’ve seen that in medical malpractice and workers’ compensation.”
Savings aside, there is still the issue of how insurers will react to the results of the reforms.
By Oct. 1, all insurers must submit a rate filing reflecting a 10 percent decrease in their PIP rates or they must provide a detailed actuarial reason why they are not cutting them by that much. A similar requirement is due Jan. 1, 2013 for an additional 25 percent decrease.
During the legislative debate over the law, some lawmakers objected that the rate decreases are not mandatory, saying the state is giving insurers’ carte blanche to offer any reason for not lowering rates while still benefiting from the savings.
William Stander, president of the public relations and lobbying firm Whisper Inc. that represents insurers, said the findings in the report seem reasonable. He took exception to critics who charge that insurers are going to benefit from the law without passing the savings on to drivers. “Most of the critics paint the whole thing as a bait-and-switch on the part of the industry while failing to point out that the bulk of the legislation doesn’t even go into effect until next year,” said Stander.
State officials have put auto insurers on notice that they expect to see results.
Chief Financial Officer Jeff Atwater, who was a driving force behind the reforms, said he expects insurers to do their part by lowering PIP premiums.
“I am eager to see these projected savings, if not more significant savings, passed on to Florida’s insurance consumers,” said Atwater in a statement.
Atwater expects the savings will be bigger than the study indicates. “Recent history has shown us that independent actuarial studies conducted on reforms relating to the workers’ compensation and medical malpractice systems significantly under-estimated the reductions actually realized,” he said.
Westcott said that even with the caveats, she believes that the reduction in PIP costs will actually prove to be an incentive to lower rates. Even if an insurer’s PIP rates are not where they should be, she said lower PIP rates may be offset by the profitability of other auto lines of insurance like bodily injury. And given the competitive nature of the state’s auto market, the ability to lower any costs to gain market share may be enticing for insurers.
“At the end of the day it is a business decision [about] how competitive can you be to obtain customers?” said Westcott.
It will be a left to agents to explain how the savings, or lack thereof, affect auto rates to drivers who are expecting to see their overall premiums go down.
Florida Association of Insurance Agents Senior Vice President Kyle Ulrich said agents will have to first tell drivers that any savings only apply to the PIP portion of their policy, which on average is just 20 percent of the overall premium.
Then there is the fact that the “savings” may not necessarily mean a driver’s PIP rates will go down.
“A driver may not see a rate reduction,” said Ulrich. “It’s just a rate increase is lower due to the reforms.”
Interestingly, it is possible that insurers have done a better job underwriting policies, adjusting claims, and pursuing instances of possible fraud will see smaller decreases than insurers that did a poor job administering their business.
“Insurers that are already doing what the reforms intended may see little or no decrease,” said Ulrich. “Others that have not performed as well might see higher decreases.”
Drivers will also have questions about when they might see any changes in their premiums. The new law takes effect Jan. 1, 2013, but applies to individual policyholders when they purchase a policy or when their current policy is renewed.
Given the renewal cycle of most policies, Pinnacle said that most drivers’ policies will not include any changes due to the PIP reforms until June 1, 2013 or later.