Eli Lehrer: Time to fix no-fault

Published: Wednesday, January 11, 2012 at 1:11 p.m.
Last Modified: Wednesday, January 11, 2012 at 1:11 p.m.

Florida’s vehicle insurance system stands on the verge of a crisis. The almost $1,500-per-year premium that state residents pay, already among the highest in the Southeast, has continued to climb even as insurance rates have fallen in some other states.

Areas with more crime and more crashes have seen even faster increases. Tampa residents, for example, may see their bills go up by $300 or more this year alone. (Typical policies run almost $2,500 a year there.)

By all accounts, fraud and abuse have also risen statewide, even as vehicle crashes and overall crime have declined. More than a few vehicle insurers are considering leaving the state, and, if they do, vehicle insurance could become quite hard to get in some areas.

Many of the problems, it appears, stem from the way the state handles a type of mandatory insurance coverage called personal injury protection (PIP). As it convenes for its 2012 session, the Florida Legislature needs to make some reforms to PIP but, while it does so, it should also try to fix the problems with the system rather than trying to start over from scratch.

Some background first. Like 11 other states, Florida requires that all vehicle insurance policies include “no fault” coverage. This means that when an insurance claim falls below $10,000, people who suffer the damage will file a claim against their own insurance company rather than wait while someone determines who was at fault. (Other claims can also be handled on a no-fault basis although they’re much more likely to end up in court.)

At least in theory, this allows simpler matters to be settled without going to court, ensures that people who have insurance will always get paid, and results in claims being settled more quickly. A medical fee schedule that applies to all doctors’ bills stemming from vehicle crashes is supposed to keep those kinds of costs under control.

In practice, however, things haven’t always worked out as they should. Civil-rights era state laws offering lawyers huge “fee multipliers” when they prevail in lawsuits against insurers cause incidents involving vehicle crashes to end up in court at about the same rate as they do in “fault” states.

Meanwhile, the medical fee schedule, intended to contain costs, likewise has failed almost entirely. Even though Florida has relatively low mandatory “no fault” medical benefits, actual costs for care rank among the highest largely because Florida doctors tend to perform more procedures than those in other states.

Finally, a series of court decisions has made crackdowns on fraud increasingly difficult. That’s unfortunate because the incidence of fraud – staged “accidents,” inflated costs for actual or claimed medical attention – is staggering.

Even so, the no-fault system of vehicle insurance still does a lot of good for honest law-abiding Floridians by making sure that most routine claims related to vehicle crashes are paid promptly.

That’s why legislators should reject proposals that Insurance Commissioner Kevin McCarty and some in the insurance industry have mused about to trash the no-fault system altogether and switch to a “fault” system where even more cases wind up in court.

The problems confronting Florida’s vehicle insurance system, while serious, are not irremediable. Simple abolition of the fee multiplier will reduce the number of lawsuits, reforms of the medical fee schedule can make the system work as intended, and reasonably simple changes to state law could give investigators more tools to catch the criminals who are exploiting the system.

While states such as New Jersey, Massachusetts, and Utah have managed to fix no-fault systems that were even more troubled than Florida’s and then saw their rates drop in the wake of those fixes, Colorado, the most recent state to have entirely abandoned a no-fault system, saw its auto rates go up soon after the switch.

Florida’s vehicle insurance system faces serious problems, but they’re not insoluble. The Legislature needs to fix them by reining in attorneys’ fees, revisiting the medical fee schedule, and restoring many of the tools needed to crack down on fraud. What it should not do is eliminate the basics of the system; they’re worth preserving.

Eli Lehrer is an Adjunct Scholar of The James Madison Institute, a non-partisan public policy center based in Tallahassee, and Vice President of Washington, D.C. Operations for the Heartland Institute.

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