New laws designed to reduce loss cost volatility and claims fraud in the Florida no-fault auto insurance system, commonly referred to as PIP, which stands for personal injury protection, would be a credit positive for property/casualty insurers, according to Fitch Ratings.

Among all U.S. states, Florida has generated the fifth-worst direct underwriting results in private passenger automobile insurance in the five-year period from 2008 to 2012.

The legislation was designed to target the abuse of Florida’s PIP system, which has been estimated to cost as much as $1 billion a year. Major changes in response to this law include the following requirements: accident victims must begin receiving treatment within 14 days of injury; available benefit payments of $10,000 per claimant are only available for medical emergencies and are $2,500 otherwise; and acupuncture and massage therapy are no longer considered payable sources of treatment. The law also increases fraud penalties and sets limits on attorney fees.

Florida is the third-largest state for private passenger auto insurance based on direct written premiums, according to Fitch. The largest five writers in Florida account for more than 60 percent of the market – they include National Indemnity Company with a 17 percent market share, State Farm with 16 percent, Progressive with 13 percent, Allstate with 11 percent and United Services Automobile Association (USAA) with 5 percent.

Full effect of the new laws will not be felt until the middle of 2014, when PIP prices are required to decrease by 25 percent and initial implementation will have some seasoning. Still, some industry participants have reported a reduction in the cost of some claims.

Recently, Rep. Carlos Trujillo filed two measures, HB 267 and HB 269, making bodily injury coverage a replacement for no-fault auto insurance. Fitch will continue to monitor developments related to the Florida PIP market to determine what impact, if any, it could have on ratings.

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