If PIP goes, don’t bring in price controls

However well-intentioned, price controls will not work in Florida, if the Legislature moves to finally repeal the No-Fault/Personal Insurance Protection (PIP) auto insurance system this spring. While the concept of No-Fault/PIP may sound reasonable — $10,000 of personal injury protection made available regardless of fault in an accident — many state leaders have thrown up their hands in frustration after decades of trying to root out rampant and expensive PIP fraud.

As legislators consider what to do with auto insurance requirements in a post-PIP world, there is talk of mandating rate rollbacks or passing new laws with “recommended” rate savings.

This would be a mistake. Rather than setting prices by law, history shows that lawmakers would do best to establish new coverage requirements for drivers and then allow prices to be set by market forces in Florida’s competitive auto insurance market.

In 2012, Florida lawmakers made a significant attempt to — once and for all — solve the fraud and abuse wreaking havoc on PIP. It required auto insurers to make rate filings that decreased premium rates by at least 10 percent and 25 percent, respectively.

The problem was that major cost-savings provisions in the new law were challenged in court, meaning auto insurers were being pressured to reduce rates before seeing actual reduction in fraud. This directly contradicted lessons learned from decades of insurance regulation. Reform failed.

State insurance regulation aims to balance the goals of keeping insurance companies solvent to assure claims are paid while also fostering competition to provide consumers with better prod- ucts at optimal prices. In Florida, auto insurance is amongst the most competitive insurance services with a couple of hundred companies competing for a piece of the pie.

It is worth remembering that, in 2006, Gov. Charlie Crist shepherded through mandatory price reductions and restraints on the state-run Citizens Property Insurance Corp. The result led to shortages of insurers willing to write along the coast, which pushed the insurer of last resort’s policy count to a dizzying 1.4 million.

Citizens had a lot of policies, but only a small share of the capital necessary to back claims in the event of a hurricane.

Who won from these price controls? Wealthier second-home buyers and out-of-state homeowners — including tens of thousands who lived overseas, who could afford to pay cash for their “unoccupied” homes and ben- efited from subsidized coastal insurance.

Who lost from these price controls? The average Florida property owner who had to shoulder their own insurance costs plus subsidize insurance for well-heeled, often out-of-state consumers. The good news is, that in the past three years, the removal of these patently unfair price controls created a balancing of rates for all Floridians, and now Citizens’ policy count has plunged by almost 1 million. Again, price controls failed.

Florida’s No-Fault/PIP system has been flawed for decades. But if legislators do decide to get rid of PIP, they should avoid the temptation to insert price controls that would bring about yet another failure.