Kevin McCarty, Insurance Commissioner, Florida has given a bleak outlook of the PIP auto insurance system that seems to have spiraled out of control in the recent times. The benefits that have been doled out on the PIP claims seem to have skyrocketed to a whopping 70% since 2008, while the number of licensed drivers has remained the same, and even though the accidents have decreased.
The massive hike in PIP payments which was about $2.37 billion in 2010 when compared to $1.43 billion in 2008 is due to the rise in fraudulent practices and due to the abuse of the system.
While some of the increase could be attributed to the rising medical costs, there can be no explanation for a 70% hike, states McCarty.
The entire statistics has been put together from 31 companies that represent around 80% of the market. Gov. Rick Scott has stated that this hike is equivalent to an $800 to $900 million increase in taxes for residents of Florida.
McCarty went on to add that it came out of the ‘Joe and Mary lunchbox’ and it was due to no fault on the part of the driver – even if you are a very good driver this is something that seems to be unavoidable.
After the last round of PIP reforms came into effect in 2007, fraudsters seem to have perfected the art of finding loopholes in this system, he added.
He also illustrated this point by comparing the premiums for a married 40-year-old woman as well as an unmarried 25-year-old man, where both have good driving records. The premiums for both these people seem to have increased by around 84% since 2005.
This dramatic increase in PIP premiums are being done by the insurers in order to be able to break even, but even that seems to be failing. Even after increasing the auto insurance rates, every dollar that is being collected by the insurance carrier goes into paying for the PIP medical claims. If the other costs are added, the PIP combined ratio comes close to 140.
McCarty told the cabinet that this is obviously not a sustainable option and this in fact, was a crisis situation. He went on to explain that companies may not lose money, but insurance providers will charge more or they will find ways and means to put their money elsewhere.
Even the efforts made by the lawmakers to curtail the PIP fraud seem to have failed, he said.
