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No-Fault's Demise Could Mean Higher Rates, Risk

Jul 25, 2007

By Russell Ray, Tampa Tribune, Fla.

Jul. 26--Come Oct. 1, auto insurance will no longer be required in Florida.

It's the consequence of the Legislature allowing Florida's no-fault auto insurance law to expire.

The aim of ending no-fault, which requires drivers to buy $10,000 of personal injury protection to cover the cost of medical care, was to reduce the widespread fraud created by the program and to lower insurance rates. But PIP is linked to the state's other type of mandatory auto coverage -- property damage liability.

The demise of PIP will kill the mandate to carry a minimum of $10,000 of property damage liability coverage, according to the state Department of Highway Safety & Motor Vehicles, which enforces the no-fault law.

"Insurance will not be required for good drivers," said department spokeswoman Julie Baker, although drivers who get into an accident and have no insurance will be required by the state to carry insurance for a certain amount of time.

The end of mandatory auto insurance in Florida, home to more than 12 million drivers, could raise insurance rates 25 percent to 30 percent as the risk of colliding with an uninsured motorist climbs, said Gunars Mansons, vice president of the Specialty Agents Association of Florida, a trade group representing small independent insurance agents.

Only Tennessee, Wisconsin and Iowa do not require drivers to carry some form of auto insurance.

"Nobody believed this would really happen. Nobody believed it would really go this far," Mansons said. "Mandatory insurance is going away, and rates for responsible individuals will have to go up."

Sen. Bill Posey, R-Rockledge, said lawmakers were well-aware that auto insurance would no longer be mandatory if no-fault was allowed to expire with no changes.

"Of course, they knew what was going on," Posey said. "I think everybody was aware of it. I was certainly aware of it."

But Mansons said most lawmakers were oblivious to the effect of PIP's sunset.

"If all of our lawmakers knew they were heading us into no mandatory insurance, they might have done something while they were in session," he said.

State Farm's Perspective

State Farm, the state's largest auto insurer, and other auto insurers who lobbied hard for the sunset of PIP say the requirement to buy property damage coverage will survive PIP's termination.

The no-fault law requires that all policies must include $10,000 of property damage coverage. State Farm contends the law's reference to property damage, though flawed, will be preserved despite the expiration of the PIP law, company spokesman Justin Glover said.

"If that could happen, the Legislature could accidentally repeal all kinds of things through bad references," Glover said. "That's just not how our system of law works."

Allison North Jones, spokeswoman for Floridians for Lower Insurance Costs, a coalition formed to push for the end of PIP, said eliminating the mandate for drivers to carry property damage liability coverage was not the coalition's intent.

"Property damage is sold as a bundle with PIP, but by removing one part of that bundle doesn't mean you've removed that requirement," Jones said.

What's more, the state has a financial responsibility law that requires drivers to be able to pay for any property damage or medical care they may cause. Carrying liability insurance is the best way to meet the state's financial responsibility law, though it's not required.

"Every driver in the state is personally responsible for compensation incurred if they are at fault in a car crash," said Baker of the motor vehicles department.

However, that law doesn't require drivers to prove they can pay until an accident occurs.

"The financial responsibility law means absolutely nothing because it only counts after you have an accident," Manson said.

Despite arguments from State Farm and others who say property damage coverage will continue to be required, the motor vehicles department has not changed its position. Mandatory auto insurance will disappear when PIP expires in a little more than two months, Baker said.

Drivers will no longer be required to show proof of insurance when they renew their license plates each year, she said.

"We won't have a mechanism in place to track whether someone is insured or not," Baker said

The confusion and uncertainty is created by those who want to see the controversial PIP coverage extended and preserved, Jones said.

Gov. Charlie Crist has said he may call a special session in September to reform the no-fault system.

"This is merely at attempt by special interests to confuse the issue," Jones said.

Meanwhile, lawmakers are trying to devise a plan to reform the no-fault system rather than let it fade away.

The no-fault law is controversial because it allows unscrupulous doctors and clinics to bill for unnecessary and expensive medical procedures to get the full $10,000 of coverage guaranteed for every accident. "We're overpaying for it," State Farm's Glover said.

Consumers To Decide

The end of no-fault will allow consumers to decide for themselves whether they need such medical coverage, Glover said. For some people on Medicare, PIP is a financial burden, he said.

"They're buying PIP when they probably don't need it," Glover said.

But the state's hospitals and trauma centers want to preserve the no-fault system because the mandatory coverage means they're guaranteed to recover up to $10,000 of the cost of care almost immediately. The elimination of PIP will cost them at least $350 million a year as they foot the bill for drivers who have no health insurance.

And health insurers say the demise of PIP will only transfer the cost of medical care to them, which will lead to higher premiums for health insurance.

Paul Sanford, an attorney for Blue Cross and Blue Shield of Florida, the state's largest health insurer, said the end of PIP will cause health insurance rates in Florida to jump at least $5 a month per family member. In Florida, 14 million people have health insurance, he said.

"At $5 a head, that's $70 million a month or $840 million a year that they will have to pay in order for PIP to go away," Sanford said.

Instead of calling a special session to try to reform the no-fault system, lawmakers should let it expire, wait a few months and gauge the results, Glover said.

"The only thing that will happen is auto insurance companies will save money," he said.

Reporter Russell Ray can be reached at (813) 259-7870 or [email protected]


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