Florida is about to change its auto insurance laws; this will likely make fraud go up!
The State of Florida is poised to change its auto insurance laws via Senate Bill 54. It was passed by overwhelming majorities in the Florida senate and house.
The main problem is that it is unclear what this bill will do.
The bill is 124 pages long with 3754 lines of information. Additionally, on line 259 of 3754, it strikes from law about 30 pages related to no-fault insurance. Therefore, to fully understand the bill you have to read these additional pages and imagine them with a line drawn through them. So, to comprehend the bill, you should read about 150 pages of insurance law.
Most people don’t have an interest in reading 150 pages of insurance law, and, even if they did read it, they may not have the background to understand what the law changes mean.
In 2017-2020 I was a president of a Florida top ten auto insurance company. I also went to law school and passed the bar (I don’t practice law). And I am a practicing actuary who is a member of two actuarial professional organizations. Even with this background, it took me all day to read the bill and digest it, and I am not 100% sure I understand all the implications even if it were to remain in the form I read. It hasn’t stayed in that form; it has already been amended twice since I read it. If you want to track the different forms, click here, and look at floor amendments.
Even though some legislative representatives who voted for this law may not understand what they are passing into law (the Florida legislature ends regular session on Friday), it does appear that some form of this bill will become law. Even though it is unclear what form the bill will take.
In the final hours of the legislature, changes have been made to make medical payments coverage (“med pay”) be mandatory, then changed to not mandatory but must be offered, then changed to have death benefits be mandatory but medical payment coverage no longer be mandatory. Some forms of this bill have different bodily injury (“BI”) limits based on the income of the customer!
How does such a bill come about?
First, you may be wondering how such a large, complicated bill becomes law with few citizens asking for it and many legislative representatives not understanding it. The key politicians pushing the bill make no mention of it on their websites as a priority, for example. They did not run on making these changes.
I don’t know for sure how this type of bill happens. I was not there. I don’t even reside in Florida. But based on other legislative activity for which I did have some inside knowledge (in a different state), I would guess that this bill came together based on a sincere desire by lawmakers to combat fraud and on proposals by the largest companies. The big law firms want to have every accident be a potential lawsuit and every lawsuit have potential bad faith settlements; the hospitals want to have quick and certain payments (they lobbied for the med pay, but who knows if this will be in the final bill); and the largest insurance carriers are not concerned about increased costs because they just pass the costs onto customers. From the point of view of the largest insurance carriers, the more complicated the insurance law, the less potential competition they have, and the easier it is for them to maintain market dominance. If the insurance premium is at a higher rate, it is easier for them to turn a profit. The main concern a big insurance company has is whether a bad faith settlement includes punitive damages which are tied to the size of the carrier. This bill protects them from that issue.
The public on the other hand, ostensibly wants lower premium charges and higher coverage limits.
An additional constituency was not a part of the discussion. They are the fraudsters of Florida, and there are lots of them. They cause huge costs to the system that are passed on to the consumer. The fraudsters were not a part of the conversation, and it is unknown to me if people who work to stop the fraudsters were a part of the conversation either.
Without further ado, let me explain the bill changes, and then I will give my opinion about the consequences.
Personal injury protection as abolished
As discussed above, line 259 abolishes personal injury protection (“PIP”), otherwise known as no-fault insurance. This includes abolition of the fee guidelines and other procedures that have been built up over the last 50 years. This means that in Florida there will be no legal guidance regarding how much of a medical bill should be reimbursed. While working as a workers’ comp actuary, I saw massive issues associated with property and casualty carriers trying to navigate a no-fee-guideline-based health care claim. Unlike health insurance providers, P&C carriers are not experts at negotiating with doctors and they end up being easy targets for fraudsters.
Med pay coverage is provided, and in some incarnations of the bill, made mandatory
Lines 2449-2547 (of the version of the bill that passed the senate) establish what med pay is. Many other lines adopt PIP like language for med pay, such as lines 1260-1702. In general med pay will function like PIP for the first $5k of medical payments except:
- There is no fee guideline, so doctors can charge what they want.
- The insurer no longer has statutory methods of investigation such as examinations under oath.
- The med payments function independently of lawsuits and do not bar third-party lawsuits from occurring. The lawsuits can begin at the same time medical payment claims are being made.
- Medical establishments (including fraudster medical establishments) can sue insurance companies for late payments.
- Insurance companies only have one cause of action against the medical companies, and that is fraud.
- Insurance companies can subrogate each other for med payments based on fault related to the accident but can only do so if the insured (meaning all payments to medical clinics, including potential fraudsters) is already made whole by the other coverages.
BI (bodily injury) coverage is now mandatory, at a limit of 25k/50k
BI is the coverage that protects you from lawsuits from other drivers who claim you are at fault in the accident. This coverage covers bodily injury, pain, and suffering. Prior to this, BI was an optional coverage. These changes can be seen at lines 751-788 and again at lines 2640-2645.
The state codifies “bad faith” lawsuits.
Bad faith lawsuits are filed when a plaintiff claims the insurance company’s behavior was so egregious that damages should be awarded beyond the policy limits of insurance. For example, your policy might have $100k coverage, but because of bad faith the insurer owes $1 million. This concept may make sense when an insurance company has a pattern of egregious behavior, but the legal concept has devolved to a game of gotcha, where lawyers make unreasonable demands and if these demands are not completely complied with, the insurer is said to have committed “bad faith”. I personally participated in a situation in Florida where our company was compelled to pay out a million-dollar claim, even though our limit was only $10k, because a payment was made one day late.
The bill codifies this concept for first party lawsuits at 1703-1753 and for third party lawsuits in lines 1754 – 2073. There are a few important features.
- It imposes no duty of good faith on the third-party plaintiff. Lines 2006 through 2010 read: “The claimant owes no duty to the insured or the insurer, and the duties of the claimant’s attorney are owed solely to their client. The claimant and the claimant’s attorneys do not have a duty to comply with this subsection.”
- It allows no punitive damages on third party claims (see line 2073). (This is a very good cost containment measure and particularly important to large insurers who would otherwise see their damages increase because they are larger carriers.)
- It has 18 pages of rules about the timing and manner of conducting claims handling, the violation of which can be considered as evidence of bad faith. It sort of creates a rule book for how the game of bad faith will be played.
What does all of this mean?
It is hard to say. Most of the big actors, like big law firms, insurance companies, and hospitals, are not fraudsters. This bill seems written to please them and most of them will act honorably. But will this bill actually halt the root cause of high premiums—fraudulent claims and excess litigation? Not likely. Here’s why.
The fraud and excess can basically be divided into two categories.
- Numerous fake or exaggerated small accidents which receive payments in the $5k to $10k range. In Florida, these are VERY common, and fraudsters make hundreds of millions of dollars off of these claims. This is what is driving up the cost in Florida. Either with or without mandatory med pay, there is nothing in this bill to address the rampant small dollar fraud ongoing in Florida. The new law will increase the number of nuisance small claims, especially when considering that each of these new small claims could turn into a bad faith claim. Additionally, this bill takes away some of the tools insurance carriers have to fight this type of fraud.
- Large claim settlements. These types of claims are made when someone greatly exaggerates the harm of a real or fake claim, and often uses legal mechanisms to inflate the award. These are the $1 million verdicts. At the present time, these are not what is driving the high costs in Florida but soon they will be. By having everyone carry BI, and removing medical payment exhaustion as a prerequisite, it is a near certainty that more time-limited demands for full limit claims will be made. Many more full payment limits will be made to avoid the legal setup of “bad faith” which is now codified and heavily based on time demands. Large carriers have the financial cushion to absorb this while they increase rates, but small carriers may not and will be forced to close.
So, Florida insurers will be paying more because the two activities described above will become more common, not less.
So what have we solved?
I’m not sure. I guess lawmakers will have the ability to say “We abolished PIP. We wanted to do something rather than nothing. This is what large law firms, large hospitals, and large insurance companies told us to do.” Note, I have no inside knowledge of who contributed to this bill. It is very possible that there was no lobbying activity going on. My suspicions are based on other life experiences, which suggest that either through the actions of lobbyist or just based on friendship among lawmakers and big businesses, that laws tend to address big business needs without considering the root issues. It is a fact that the largest businesses are being taken care of with this bill (large law firms, large hospitals, and large insurance carriers), and no particular measures are being put in place to combat fraud.
There is no reason to believe fraud will decrease because of this bill, but there is every reason to believe that there will be lawyer billboards everywhere!
What are things that could have been done instead?
Small medical claims
Weirdly, the already existing PIP statute seems better than the med pay replacement. It has a fee guideline, and it prevents lawsuits while the medical payments are being exhausted.
So, rather than replace PIP, why not reform it?
The big problem is lawsuits related to assignment of benefits. This occurs when a claimant receives services from a medical clinic or other vendor and signs a document allowing that clinic or business to sue the insurance company. These clinics or businesses have received “assigned benefits” and can sue insurance companies. If they win, they receive lawyer fees, and if they lose, there are no consequences. This has created an entire industry with tens of thousands of these types of lawsuits being filed per month. Insurance companies do not know how to deal with them; if they fight them and win, they still have spent considerable money on attorney fees; if they fight them and lose, they now must pay the full claim and attorney fees (on top of the fees they already paid their own attorneys). Many insurance companies simply surrender and pay whatever medical bills or other fees are demanded without question. This surrender has allowed a massive industry of fraudsters to grow in Florida, whereby fraudsters use assignment of benefits to bill for services never provided. It is a volume game. The fraudsters send so many small claims that they end up making hundreds of millions of dollars off of these small, fraudulent claims.
I would have proposed this amendment:
“For any lawsuit brought as an assignment of benefits, the defeated party must pay the prevailing party’s court costs.”
This would drastically change the situation in Florida. Legitimate clinics and businesses would continue to do legitimate business, but fraudsters would now face the consequences of lawyer fees for their frivolous claims.
In the assignment of benefits situation, the original injured party (the person in the car crash) is already whole. He or she has already been treated. It is only a question of whether or how much the insurance company should pay the doctor or other vendor. These are two businesses fighting over fees, yet the current law makes one side fight with its hand tied behind its back. If this one-way attorney situation were removed, fraud would shrink in Florida.
If one-way fees for assignment of benefit situations were eliminated in Florida for homeowners claims it would likewise reduce premiums for homeowners insurance. Here is a proposal from Florida experts related to homeowners:
Bad faith—large claims
With regards to bad faith, here are some ideas from an article in the Florida bar review:
As a condition precedent to bringing a civil action under this subsection:
The insured/claimant must establish it acted in good faith in attempting to settle the claim by:
1. Making a timely and specific settlement demand;
2. Allowing a reasonable time for acceptance;
3. Identifying the type of release of liability the insured/claimant is prepared to provide to the insurer and insured(s); and
4. Cooperating fully in the timely submission of medical bills, accident reports, and other information needed by the insurer to investigate the claim.
What is unreasonable about this? It came up in my first Internet search. I assume the legislature has seen this article. Why do they not only ignore it, but actually codify against it?
It should also be noted that many states don’t even allow bad faith lawsuits on third party claims. Why is it so important to allow it in Florida?
And my own personal solution: why not allow insurance companies, as a measure of good faith, to pay all medical and pain and suffering to date, while they continue to investigate the accident? Why must the claim be completely and finally settled in a short period of time when individuals often do not know how seriously injured they really are? Time pressured demands for full and final settlement are just a negotiation tactic and can lead to bad decisions. (Ironically, this is similar to the time pressure to pass Senate Bill 54.)
I believe that if these types of reforms were in place with regards to bad faith, that a mandatory BI coverage could be put in place and perhaps costs would even go down.
Conclusion
I feel sorry for the consumers of Florida who are going to see their rates go up. Perhaps some of the measures I discuss above can be considered in two years. It is strange to me to see lawmakers whom I respect pushing through such a bill in such a hasty manner. It is strange to me that they would not go for small, obvious tweaks that would disadvantage fraudsters and not harm the public.
In the meantime, I am in the process of altering our “PIP Radar” software to make it “Claims Radar” and incorporate the changes that will come. This is currently hard to do, though, because the bill seems to change every few days. We’ll have to wait, along with other elected representatives, until the bill is passed to see what is in it. 😊
