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PalmBeachPost.com

FLORIDA'S INSURANCE CRISIS: Auto Insurance

Fraud blamed for auto insurance hikes

By Jeff Ostrowski, Palm Beach Post Staff Writer
Sunday, Feb. 23, 2003
Fla.'s Insurance Crisis

Thomas Brotemarkle opened his automobile insurance bill last month and was shocked to find his rates had rocketed from $1,600 to $2,600 a year, a 60 percent increase.

Brotemarkle, 44, immediately phoned his Allstate agent, who informed the Jupiter Farms resident that his wife's minor fender bender --two years ago in a Publix Supermarket parking lot -- was responsible for much of the increase in the cost to cover the couple's 1996 Toyota Camry and 1994 Mazda 626.

At about the same time Brotemarkle got his bad news, Stuart retiree Iris Kwek received a bill from Hartford Insurance Co. and learned she was being hit with a 47 percent increase, from $620 to $913 a year, to cover her 2000 Oldsmobile Intrigue.

She plans to take an AARP driving course that will earn her an $80 discount, but still chafes at the hike, particularly considering her accident-free history.

"It's almost senseless to have insurance," Kwek said. "I am quite upset."

Brotemarkle and Kwek aren't alone in their frustration. From Pensacola to Key West, motorists are being hit in the pocketbook by steep increases in insurance rates.

And it's not just drivers who are suffering. Homeowners, medical malpractice and workers compensation insurance costs also are soaring in Florida, frustrating policy holders and pushing the insurance crunch into the state's political spotlight.

While Florida's rising autopremiums mirror a national trend, insurers here offer an explanation not heard in most states: Insurance fraud runs rampant, particularly in South Florida.

Insurers say Florida drivers are paying as much as $200 apiece to line the pockets of scammers who milk the state's insurance system. Bogus medical clinics enlist scammers to stage accidents, with the goal of submitting fraudulent bills to insurers who provide the personal injury protection, or PIP, policies.

Heading into next month's legislative session, the pervasive fraud and soaring cost to Florida drivers is a top priority for state political leaders, including Gov. Jeb Bush. They wonder if it's time to end Florida's 30-year-old system that requires every motorist to carry $10,000 of PIP and property damage liability coverage.

"My approach is either fix it or flush it," said Senate President Jim King, R-Jacksonville, who is leading the legislative charge for reform. "The fraud right now is way out of hand."

Yet skeptics say insurers have exaggerated the cost of fraud in an effort to raise rates, fight legitimate claims and win favorable legislation in Tallahassee.

Rates keep increasing

There's no argument that rates are rising. Florida's largest auto insurer, State Farm, last year raised prices twice -- 10 percent in January and 8 percent in October. No. 2 carrier, Allstate, this month imposed a hike that averages nearly 15 percent statewide, its third year in a row of sizable rate increases. Other major carriers, including Progressive, Geico and Hartford, also are raising rates.

What's more, the carriers that specialize in bare-bones policies for low-income motorists are going broke at an alarming rate. Fortune Insurance of Jacksonville, and Union American Insurance and Aries Insurance, both of Miami, went out of business in the past three years. They all blame PIP fraud for at least part of their failure.

As a result, the number of policies in the Florida Automobile Joint Underwriting Association, the high-priced carrier for drivers who can't find coverage elsewhere, quadrupled to 40,000 today from 9,000 three years ago. A growing JUA is a sure sign of a chaotic insurance market.

The rising rates mark a reversal from the late 1990s, when car insurance premiums fell as insurers competed for customers. The cost of the average Florida policy fell 5 percent, from $783 in 1996 to $746 in 2000, according to the National Association of Insurance Commissioners.

That consumer-friendly trend is now a distant memory.

Auto insurers nationwide offer a litany of reasons, including the popularity of lumbering SUVs, which do more damage and are pricier to repair than smaller cars. There's also the climbing cost of jury awards in auto liability cases, not to mention the bear market that cramped insurers' bottom lines.

Fraud adds to the problem

But in Florida, fraud looms as an additional culprit. State law requires every car owner to buy $10,000 of PIP insurance, which guarantees minimum coverage for motorists involved in accidents, regardless of who was to blame. A statewidegrand jury in 2000 called those benefits a "slush fund" for unscrupulous chiropractors and doctors.

Yet Florida remains one of only seven states that still require no-fault insurance. Other states, including Georgia, eliminated the program due to fraud problems.

Scammers stage crashes with cars full of passengers so everyone involved can visit a doctor with fake ailments. While the motorists feigning injury might collect a few hundred bucks each from a medical clinic, the real beneficiaries are the clinics behind the crashes, which submit phony bills for thousands of dollars to insurers.

Insurance fraud investigators are cracking down. Last year, seven Miami-Dade doctors and three clinic owners were charged with defrauding carriers of $1 million by submitting bills for treating patients they never saw.

Still, most of the fraud goes undetected, regulators acknowledge. Bob Neumann, head of the Florida Division of Insurance Fraud and former sheriff of Palm Beach County, recently estimated that 80 percent of accident-related medical claims filed in Miami-Dade County are bogus. Miami-Dade remains the epicenter of PIP fraud -- and Miami drivers pay more than motorists elsewhere in South Florida and the Treasure Coast -- but thescams have spread throughout the state.

Insurers estimate that they pay out $1 billion a year in fraudulent auto claims in Florida, where they collect $6 billion a year in premiums from motorists. The cost of the average PIP claim climbed from $4,300 in 1997 to $5,700 last year, according to the Florida Office of Insurance Regulation. That increase, insurers say, is a direct result of scammers learning how to work the system.

And insurers simply pass the cost of fraud onto their customers, said Richard Parrillo, the president of United Automobile Insurance Group, a North Miami Beach company that provides PIP coverage to 200,000 motorists in Miami-Dade and Broward counties.

Parrillo's company stopped doing business in Palm Beach County in the 1990s because of the high number of fraudulent claims here, he said. And the company in the past few years has begun to stubbornly fight what it believes to be bogus claims.

Fraud overstated, critics say

Critics argue, however, that insurers and regulators overstate the cost of fraud. Robert Hunter, director of insurance for the Consumer Federation of America, calls the $1 billion estimate little more than a wild guess.

"That's just made-up," Hunter said. "The numbers are very squishy."

What's more, some attorneys and motorists insist insurers use fraud as an excuse to deny valid claims.

"They would rather fight you than pay a legitimate claim," said Phil Valente, a West Palm Beach attorney who sues insurers on behalf of motorists. "An insurance company will target anything as a fraudulent claim."

One of Valente's clients, electrical contractor Frank Ferrara, says he was forced to sue Allstate after the company offered to pay only $5,000 to treat back and neck injuries he suffered in a 1998 crash on State Road 7. Ferrara sued and won $203,000, plus $162,000 in attorney fees.

Allstate appealed, and Ferrara settled for a confidential amount. The dispute still bothers Ferrara.

"They pushed me to such a point that I ended up in court," Ferrara said. "They make it sound like everybody wants a million dollars."

An Allstate spokeswoman declined to comment on Ferrara's case, but she said the insurer fights claims that it doesn't agree with so it can keep rates from rising even more.

Gripes about stingy payment practices are particularly loud when it comes to United Automobile Insurance. Attorneys say Parrillo's company denies claims so often that many doctors now refuse to treat patients covered by the company.

"They blame everything on fraud," said Fort Lauderdale attorney Gary Gelch. "That's their magic word."

Parrillo's response? The carrier would be broke if it didn't fight fraudulent claims. For instance, United Automobile once paid "millions" for Jacuzzi treatments at a Miami-Dade clinic, only to learn later that the business didn't even have a whirlpool on its premises, Parrillo said.

Value of PIP questioned

With such bickering and drivers' premiums doubling in some cases, politicians are wondering whether they simply should do away with Florida's required PIP coverage. An anti-fraud law passed in 2001 in Tallahassee hasn't significantly slowed scammers, insurers and politicians say.

King, a leader in the GOP-dominated state legislature, appointed a select committee to recommend repairs to Florida's auto insurance system.

Also joining the chorus, Gov. Bush said recently: "Just getting rid of it might be an option."

Chief Financial Officer Tom Gallagher, formerly the state's insurance commissioner, makesno secret of his skepticism about mandatory insurance. He says some 20 percent of motorists in South Florida are uninsured, although the state Department of Highway Safety and Motor Vehicles places the number of uninsured closer to 10 percent.

In either case, flouting the law is a simple matter: A motorist makes a down payment on a policy and receives the proof of insurance he needs to get a license plate. By the time he stops paying his premium, he has a valid tag. A crackdown on this practice in the '90s fell flat when authorities seized the license plates of vehicles they believed to be uninsured, only to learn later that some of the drivers who showed up on the state's list of scofflaws in fact had valid insurance.

The state suspended the licenses of some 347,000 uninsured drivers last year, although a suspension doesn't necessarily prevent someone from driving -- and perhaps getting in a wreck.

Deciding whether to buy auto insurance boils down to a question of protecting personal assets, insurers and regulators say. A middle-class or wealthy driver feels compelled to carry insurance should an accident lead to a judgment that could force him to sell his house or empty a bank account. But a poor person who can barely support his family and needs his car to drive to work will choose food over auto insurance, even if the coverage is mandatory, Gallagher said.

Both King and Gallagher raised the possibility of dumping mandatory insurance, but neither endorsed it outright. And while nearly everyone involved in the auto insurance debate supports raising the criminal penalties for scammers, it's unclear whether the second round of penalty-stiffening in three years will stop them.

"We can make them have the death penalty," Gallagher said, "and we're still not going to get rid of PIP fraud."