Marcia Passos Duffy
If you live in a couple of the 12 “no fault” car insurance states, major changes could be roaring down the road.
Personal injury protection (PIP) is mandatory no-fault insurance that kicks in to cover medical expenses and lost wages for drivers, passengers and other people involved in a car accident, regardless of who's at fault.
Two states, Florida and Michigan, are looking at doing away with PIP because of out-of-control costs associated with high medical bills and insurance fraud. Currently, both states have legislation pending to either repeal no-fault insurance or change it dramatically.
Robin Westcott, Florida's state-appointed insurance consumer advocate, says: “PIP’s intent was to provide coverage and eliminate litigation … but what we’re seeing is systematic abuse. It is not saving people money, and we’re seeing an explosion in litigation. We can’t have a situation of mandated coverage that is prohibitively expensive for the consumer to maintain.”
“No fault” car insurance was created in the 1970s with a simple goal: to keep litigation costs down by covering everyone in a car accident regardless of who's at fault.
In reality, the “keeping costs down” part has not happened in some states for a variety of reasons. Colorado, for example, repealed its 30-year no-fault status in 2003 because of spiraling premiums and claims abuses. According to the Rocky Mountain Insurance Information Association, Colorado's no-fault status had little effect on the number of lawsuits filed.
Aside from Florida and Michigan, states with no-fault laws are Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.
'Fraud tax' in Florida
Florida’s no-fault system, which dates back to 1972, requires drivers to carry PIP coverage, which provides $10,000 per person for medical bills.
While PIP may look good on paper, the system now is rampant with insurance fraud, mostly through staged accidents, says James Whittle, assistant general counsel and chief claims counsel with the American Insurance Association, a trade group for auto and home insurers. The association has called for elimination of mandatory PIP coverage in Florida.
Florida tops all states for staged accidents, which often are carried out by criminal gangs seeking to reap PIP payments from auto insurers. According to the National Insurance Crime Bureau, there were 2,779 questionable auto insurance claims linked to staged auto accidents in Florida in 2010, up 39 percent over the year before.
James Quiggle, a spokesman for the nonprofit Coalition Against Insurance Fraud, says a two-car family in Florida pays about $100 in extra car insurance premiums every year just to cover fraud, including PIP cases. It's something known as a "fraud tax."
“No-fault fraud has placed a great deal of upward pressure on auto premiums, at a time when so many drivers are under great financial stress in a down-turned economy,” Quiggle says.
Michigan: Unlimited coverage
A major problem for the PIP system in Michigan is “overutilization” of benefits. Michigan is the only no-fault state without a cap on injury expenses stemming from an auto accident. Fraud also is a problem in the state’s “attendant care” law, which allows family members to provide home care to those with disabilities stemming from car crashes — and whose services are covered by car insurance companies.
While in the past Michigan legislators have sponsored bills that chip away at troubles in the state’s no-fault laws, one piece of legislation filed in 2011 takes a sledgehammer approach: revoke the PIP mandate for lifetime medical benefits. Drivers then would able to choose among four tiers of medical coverage – the lowest being a $250,000 cap.
A recent study by the Michigan Chamber of Commerce indicated that major reforms are needed to protect the state’s no-fault insurance from collapsing and to prevent premiums from spiraling out of control. Car insurance premiums in Michigan, according to the chamber study, have risen 31 percent over the past decade. By comparison, premiums have increased an average of 14 percent nationwide during the same period.
PIP may be lifeline for some
While the numbers speak the truth about the high costs associated with no-fault laws, consumer advocate groups say that repealing or changing no-fault laws could result in costs being shifted from car insurance companies to taxpayers.
Michigan’s CPAN: The Coalition Protecting Auto No-Fault wants to keep the state's 39-year old no-fault law on the books. According to CPAN, if no-fault is repealed or even changed in the state, medical costs would shift directly to the taxpayer-funded Medicaid insurance program once a family’s assets were depleted.
Florida’s Westcott points out that PIP coverage is all the medical injury coverage that some people, particularly the young or the poor, may have. “If PIP coverage is not available, a lot of people who get injured just won’t get covered,” she says.