Will new Florida law really crack down on auto insurance fraud?

Nick DiUlio

It’s been a long time coming, but Florida lawmakers finally have taken action to fight severe fraud and abuse that have plagued the state’s auto insurance market for several years. As a result of the legislative change, auto insurance premiums in Florida could start falling within a year, experts say.

“I think these reforms were absolutely necessary,” says Robin Smith Westcott, insurance consumer advocate for the State of Florida. “We have people in the state who need to make the choice of being uninsured because they just can’t afford coverage. And fraud and abuse are at the root of this.”

On May 4, 2012, Gov. Rick Scott signed a bill that makes significant changes to the state’s no-fault auto insurance system. The law takes effect in July 2012.

According to the Insurance Information Institute, the law is designed to combat a few problems. For one, it should curb insurance fraud associated with staged accidents, which involve drivers intentionally causing crashes to collect insurance money. It also should reduce the abuse of personal injury protection (PIP) coverage, which has led to several problems, including medical-billing schemes, more lawsuits and higher auto insurance premiums for Florida’s drivers.

Ray Farmer, southeast region vice president for the American Insurance Association trade group, says: “Insurance fraud is an epidemic in Florida, and this is a big win for consumers.”

‘Epidemic’ in the making

The roots of the epidemic were planted when Florida’s PIP law was adopted in 1972.

What the law guaranteed was that anyone injured in an auto accident would quickly get money to treat his or her injuries. It required a driver’s insurance company to pay up as much as $10,000 to cover everything from medical bills to lost wages after an accident, regardless of who’s at fault. And for a while, everything went swimmingly — until about six years ago.

Between 2006 and 2010, the Florida Department of Highway Safety and Motor Vehicles recorded a decline in the number of car crashes — from 1.65 per 100 licensed drivers in 2006 to 1.52 in 2010. Yet over that same five-year period, the Florida Office of Insurance Regulation discovered that the number of auto insurance claims climbed by 66 percent.

Studies by the Insurance Information Institute also showed a rise in the cost of each Florida auto insurance claim, from an average of $5,812 in 2008 to a peak of $8,796 by the end of 2010. Since it was widely accepted that fraud and abuse were to blame, this increase resulted in what many referred to as a “fraud tax” — the additional amount that consumers pay for coverage because of fraud. That tax was $58 per vehicle in 2011.

Florida drivers now pay the highest average auto liability premiums in the country, according to the Property Casualty Insurers Association, a trade group.

“When PIP was enacted in 1972, I don’t think anyone anticipated this,” says Lynne McChristian, Florida representative for the nonprofit Insurance Information Institute. “The notion was that you would get the medical treatment you needed and the premise seemed sound. But that has not panned out in the long run.”

Cracking down on fraud and abuse

According to the National Insurance Crime Bureau, Florida ranks first in the country for the number of staged accidents involving questionable insurance claims, and number one in the country for PIP fraud, which often involves deceptive drivers, shady medical clinics and unnecessary lawsuits.

Key provisions of the law include:

• People injured in an auto accident now are required to seek medical treatment from a hospital, family doctor or chiropractor within 14 days of the crash. Westcott says the requirement helps ensure that legitimate injuries are addressed quickly and that shady consumers don’t come out of the woodwork seeking to collect money a month after the accident.

• The full $10,000 PIP benefit will be available only if a doctor, dentist, physician’s assistant or registered nurse practitioner determines the insured person has an “emergency medical condition.” Otherwise, the PIP benefit will be capped at $2,500.

• PIP coverage of massage therapy and acupuncture will be eliminated. According to Westcott, massage and therapeutic exercise therapies have grown significantly over the past several years, making them the two most commonly billed — and abused — procedures in the PIP system.

• Only licensed clinics will be allowed to receive PIP reimbursements. The Insurance Information Institute says many “pain clinics” taking on PIP claims were unlicensed. Law enforcement officials have detected a link between unlicensed providers and staged accidents.

• Longer police reports must be filed for all auto accidents, allowing more crash details to be documented.

• Claims will continue to be paid within 30 days. However, if fraud is suspected, the new law extends the period for paying claims to 90 days, allowing for more thorough investigations.

“It’s important for people to understand that this law won’t change things for people who are legitimately injured in an accident,” says Sam Miller, a spokesman for the Florida Insurance Council, a trade group.

“If you’re involved in an accident and are really hurt, an ambulance takes you to the nearest hospital. If you’re not hurt right away but you wake up two days later and feel bad, you can still call your doctor or go to an emergency clinic. What you won’t be able to do is go to the 12th floor of some unscrupulous medical clinic in Miami when you’re not really hurt and burn through $10,000 of your benefits.”

National trend

Florida isn’t the only no-fault state grappling with auto insurance fraud and high premiums. According to a 2010 study by RAND Corp., auto liability premiums in no-fault states have been consistently higher than states without no-fault setups, and efforts to curb this trend are happening across the country:

• Michigan’s governor signed a bill in March 2012 that now makes it a felony to be or employ a “runner” to recruit people for staged accidents or to help commit other types of auto insurance fraud.

• Authorities in New York are using the courts to crack down on fraud. In March 2012, for instance, three dozen people were accused of participating in an auto insurance fraud ring that fraudulently billed insurers for more than $279 million in claims.

• Colorado repealed its no-fault system entirely in 2003. Colorado drivers now pay 35 percent less for auto insurance than they did before the system changed, according to the Insurance Information Institute.