OIR Cautions Against Premature Conclusions from Draft PIP Report
One of the great benefits of Florida’s public records law is early and thorough access to information prepared for or on behalf of the government. At this same time, this access can lead to dissemination of information before it has been finalized or fully vetted. This is the case with the draft report titled “Impact Analysis of HB 119” prepared by Pinnacle Actuarial Resources, Inc. under contract with the Florida Office of Insurance Regulation.
Reforms for Florida’s Personal Injury Protection (PIP) laws were hotly debated during the 2012 legislative session. The debate included the insurance industry, the Office of Insurance Regulation, physician groups, consumer groups and many others. Now these groups have eagerly awaited the release of the actuarial analysis commissioned by the OIR to determine the anticipated premium savings associated with the reforms.
Pinnacle is not quite done with its analysis. Nonetheless, the draft report has been circulated and is being disseminated by the OIR pursuant to a number of public records requests it has received. Pinnacle has developed a preliminary range of the loss and premium savings anticipated to arise from the reforms. However, in several areas Pinnacle notes that it is still evaluating the new law and will have additional information later. The OIR issued a statement when distributing the report cautioning users against misinterpreting the draft.
The 2012 reforms required the OIR to contract with an independent consultant to calculate the savings expected as a result of the law. The report is due from the OIR to the Governor, the President of Senate, and the Speaker of the House of Representatives by September 15, 2012. The OIR notes that the preliminary draft report is subject to significant revision prior to issuance of a final product. The report is missing data in areas noted throughout the document and has not been reviewed by the OIR. The OIR therefore points out that the final conclusions may, and probably will, change prior to the report being finalized on September 15.
Thus far, the report suggests that the indicated reduction in PIP losses will be in the range of 14-23% and the range of reduction in indicated PIP premiums will be 12-20%. The Office of Insurance Regulation cautions readers that the indicated savings and actual savings may differ. Many insurers have been filing rates less than their indicated rates due to the competitive nature of the auto insurance market. These insurers therefore might not be in a position to reflect the amount of the indicated savings. Depending on how far below its indicated rates the insurer is filing, the insurer might experience little or no actual savings from the law change. In fact, depending on an insurer’s particular experience, the PIP reforms might serve only to moderate a needed rate increase rather than reduce rates.
The Office of Insurance Regulation also points out that the savings relate only the PIP portion of the premium. This is a common mistake when observers try to quantify the impact of law changes on insurance premiums. Even if PIP premiums were reduced by 20%, PIP is only a small portion of the overall auto insurance policy. Thus, even when the reforms do serve to reduce rates, the percentage reduction in the overall auto premium will be much smaller than the reduction stated as a percentage of the PIP premium.