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Do Florida’s no-fault auto insurance laws encourage fraud?

Mary Lou Jay

Laws intended to simplify insurance claims could actually be making Florida a hotbed for auto insurance fraud.

A February 2011 Insurance Research Council study found that almost one in three automobile accident medical claims filed in 2007 in Florida was either exaggerated or inflated. The study also found evidence that use of MRIs, chiropractors and pain clinics is dramatically increasing, which could point to unnecessary medical procedures — and insurance payouts.

This study adds to the mounting evidence of Florida’s insurance woes. The state leads the nation in the number of questionable auto insurance claims because of staged accidents, according to the National Insurance Crime Bureau. Its data also showed a 77 percent increase in staged accidents in Florida between the first half of 2009 and the first half of 2010. Tampa, Miami and Orlando are among the top five U.S. cities where these fraudulent accidents take place.

The problem could lie in the no-fault laws that govern Florida auto insurance. Under a no-fault system, injured drivers (and passengers) file claims for medical expenses with their own insurers. This coverage is called personal injury protection (PIP). With PIP, people can get money for medical treatment quickly, without having to wait to determine who’s at fault for the accident.

No-fault laws were intended to limit injured parties’ right to sue for damages unless their medical expenses and injuries are above a certain dollar amount or meet certain definitions of severity. That provision was intended to help keep medical awards (and thus insurance costs) under control, according to the Coalition Against Insurance Fraud.

No-fault laws have indeed sped up insurance payments — but they’ve also had some unanticipated negative consequences. A 2010 study by Rand Corp. showed that medical charges for accidents were 40 percent higher in states that had no-fault insurance laws.

The higher medical costs in no-fault states come primarily from fraudulent claims. Some claimants stage accidents and then work with unscrupulous health care providers to exaggerate or fabricate injuries, knowing they’ll split the insurance payout. Because no-fault laws require insurers to pay for medical expenses within a short time frame (in Florida, it’s just 30 days), insurers don’t have time to investigate when they suspect fraud, according to the Coalition Against Insurance Fraud.

Fraudulent PIP claims also are a problem in many of the 12 other states that have some form of no-fault auto insurance. Michigan, which has unlimited PIP coverage, has the highest auto crash costs in the country, according to the Rand study. As a result, auto insurance premiums in Michigan are 17 percent higher than the national average. And the Insurance Research Council reports that in New York City, one in every five medical claims filed under its no-fault system has some element of fraud.

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