May 4, 2010

Why The Median Auto Insurance Rate Has Increased In Florida

Fallout from the economic recession, in the form of fewer insured motorists and a spike in auto insurance fraud, has combined with rising claim-related costs and increasing traffic to push Florida’s median auto insurance rates up 4.8% over the past six months. According to recent data from the National Association of Insurance Commissioners, Florida drivers are paying the fifth highest auto insurance premiums in the country.

Florida’s growing population has meant a rise in traffic congestion around its most populous cities. The Department of Transportation’s Research and Innovative Technology Administration reports that among the ten U.S. metropolitan areas that saw the largest traffic increases in the past five years, three of them are in Florida: Orlando, West Palm Beach and Jacksonville. More cars on the road lead to more accidents, and accidents mean claim-related costs for insurers, including auto bodywork, medical expenses, hospitalization, physical therapy and legal fees, all of which rose significantly in 2009.

A more complex factor is the recession, which has affected drivers’ behavior in relation to auto insurance in two significant ways. First, it has caused financially strapped drivers to drop or reduce their coverage, meaning less money is being collected in premiums. The Insurance Research Council recently found that as many as 23% of Florida motorists do not carry the minimum auto insurance required by law, ranking it fifth in the country for uninsured drivers, and its findings also suggested that the number of uninsured is directly related to the unemployment rate.

Secondly, and perhaps most significantly, the economic downturn has triggered a notable increase in staged crashes and personal injury protection (PIP) fraud, as noted by Florida’s Division of Insurance Fraud in their 2008-2009 Annual Report. PIP is part of Florida’s no-fault insurance that covers medical treatment. According to the National Insurance Crime Bureau, Florida has ranked number one in this type of fraud for three years straight. This was illustrated most vividly in the recent arrest of more than 50 Central Florida residents in relation to an organized effort to stage crashes and fake injuries for insurance payouts. Dubbed Operation Crash for Cash’ by the Hillsborough County Sheriff’s department that began the investigation, it has resulted in racketeering charges and a renewed effort to curb auto insurance fraud in Florida.

Unfortunately, the extra costs incurred by auto insurance providers are passed on to Florida drivers in the form of higher auto insurance rates, exacerbating the financial issues that fuel the trend. Relief from rising premiums will only come with sustained efforts on the part of law enforcement officials, insurance companies and state agencies to combat fraud, enforce mandatory insurance laws and address growing traffic problems.