Insurance is Founded on Actuarial, not Magical Thinking

Florida’s new personal injury protection (PIP) law, aimed at reducing automobile insurance claim fraud, was signed into law in May 2012.  The new law had to vault a high political hurdle erected by the tort attorney and medical scammer opposition.  Fortunately for consumers, there was plenty of legislative energy and revulsion over fraud-riddled scams following automobile crashes that created Florida’s “best in the nation” reputation for staged crashes. That fraudulent cabal caused unnecessarily high auto insurance premiums for innocent consumers. 

Most of the PIP law provisions do not take effect until the first half of 2013, but October 1st was the deadline for companies to file their new PIP rates.  Auto insurance companies are expected to reduce their rates by 10%, or explain why they have not.  In January 2014, a second reduction of 25% is demanded.

Anyone who has experience in the actuarial rate-setting process knows that loss experience, interest rates, competitive pressure and risk mitigation programs matter far more than political round numbers, like 10% and 25%.  Insurance companies who expect to remain solvent cannot reduce rates unless they experience actual savings.  For that to happen, fraud-curtailing provisions of the new PIP law must have been in effect for a while and must show that they are effective against the highly motivated tort attorneys and expert medical scammers.  A bullet-proof vest doesn’t work until you wear it.

The October 1st deadline predates the time when companies will have actual claims experience that could justify decreases in PIP rates.  Pinnacle Actuarial (for the Department of Insurance) doesn’t expect to see policy savings until July 2013, when most of the PIP provisions are in effect.  Between now and then, rates may go up or down and different insurance companies are likely to follow different competitive paths. 

Meanwhile some activists are already whinging about failures to see rate reductions of 10% before PIP’s provisions are effective.  The insurance tort industry and lucrative medical clinics are spring-loaded for more lawsuits through loopholes in the law.  PIP was worth passing for consumers and it is worth waiting for it to corral the battle-hardened wealthy attorneys and medical scammers who see “new PIP” as an existential threat.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective.

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