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PIP loss to hit state
More than insurance is at stake if personal injury protection lapses, experts say.
By JENNIFER LIBERTO, Times Staff Writer
Published September 20, 2007
TALLAHASSEE - The end of Florida's no-fault auto insurance system could undermine the state's backup plan for covering the cost of hurricane damage.
As meetings continued Wednesday on how to extend the mandate of personal injury protection coverage that will otherwise lapse on Oct. 1, there's more at stake than simply auto insurance premiums.
About 30 people representing companies and special interest groups affected by the coming end of PIP coverage, which requires drivers to carry at least $10,000 of medical coverage for accident injuries no matter who is at fault, are inching toward a deal.
Gov. Charlie Crist has said that if a deal is reached, he would consider adding PIP to the agenda of the special session that begins Oct. 3, so lawmakers could ratify it.
But if no deal is reached, insurance experts agree the loss of PIP could go straight to the bottom line of the state's Catastrophe Fund, the pool of money that property insurance companies can tap to pay for hurricane losses.
The reason is this: In the event of big insurance losses, the CAT Fund is replenished by assessing a fee on all liability insurance premiums around the state, including auto, homeowner, fire and other policies. If the PIP mandate disappears then the pool of premium dollars available to be assessed could go down.
The exact impact is unknown because it would depend on how drivers respond to the loss of the PIP mandate. Some may continue to keep the extra coverage while others may carry even less insurance.
Personal injury protection insurance lines account for 7 percent or $2.5-billion of a total of $37-billion a year in assessable premium dollars in Florida. All auto insurance lines account for 40 percent of the state's assessment base or more than $14-billion of the $37-billion assessable base.
If drivers trade personal injury protection policies for other types of coverage like bodily injury or uninsured motorists, the overall impact could be small, catastrophe fund experts say.
But if drivers buy only the minimum auto insurance required by state law after Oct. 1, $10,000 worth of property damage coverage, or if they go uninsured, the impact could be much larger.
The Department of Highway Safety and Motor Vehicles has said they will lose their strong enforcement power to make sure drivers keep their auto insurance, meaning more people could go uninsured without the state knowing.
That is a matter that has occurred to the catastrophe fund experts. Jack Nicholson, a senior fund officer at the state Board of Administration, raised the issue in an e-mail to Michael Carlson, who directs legislative affairs for Chief Financial Officer Alex Sink.
If motorists drop PIP and don't pick up any other type of auto injury insurance that means health insurance premiums could go up, which is not assessable by the catastrophe fund, he wrote.
"The total impact is not clear at this time," Nicholson wrote, "but this is a concern."
State Farm, the state's largest auto insurer, says if PIP disappears, so will 16 percent of State Farm's share of assessable auto dollars, said company spokesman Chris Neal. That's $435-million in assessable dollars that would disappear from the catastrophe fund's assessment base.
"It is sad that because we're going to see such a decrease in auto premiums, which is a good thing for all our customers, that we would now be concerned about assessments, but that's the world we live in," Neal said.
In January, the Legislature tried to cut property insurance premiums by providing property insurers with cheaper back-up insurance through an expanded CAT Fund, which increased the amount the state would be on the hook to pay if big hurricanes hit.
Right now, the catastrophe fund is a bit short on cash and will have only about $5.2-billion in cash by the end of the year but would be liable for up to $28-billion if major storms hit. If the catastrophe fund can't pay, it levies the assessment on all insurance premiums.
The catastrophe fund has the authority to levy as much as 6 percent a year and could make up for the shrunken pool of assessable dollars by simply raising the rate. But that would put more of a financial burden on consumers already paying in the assessment base.
Also in January, the Legislature cut premiums for Citizens Property Insurance Corp. and made it easier for homeowners to get into the state-run insurer, putting even more risk on state's shoulders.
The state's total exposure to risk through Citizens is nearly half a trillion dollars. The Legislature also strengthened the state-run insurer's ability to charge fees in order to pay claims, by expanding its assessment base to match the catastrophe fund's base. That means Citizens could also be impacted by PIP's sunset.
However, Bruce Douglas who is the chairman of the board that runs Citizens, says he doubts PIP's sunset would impact Citizens much, because the expanded assessment base gives Citizens far more access to dollars to pay claims than it had in previous years.
"I don't see it as a problem for Citizens, or the people as a state of Florida," Douglas said.