Florida Office of Insurance Regulation Issues Draft Version HB 119 Personal Injury Protection (PIP) of Impact Analysis Report

Aug 3, 2012


The Florida Office of Insurance Regulation (“OIR”) advised today, August 3, 2012, that it has recently received several public documents requests for the draft report titled “Impact Analysis of HB 119” prepared by Pinnacle Actuarial Resources, Inc. pursuant to Florida Statutes:

“…the Office of Insurance Regulation shall enter into a contract with an independent consultant to calculate the savings expected as a result of this act. The contract shall require the use of generally accepted actuarial techniques and standards as provided in s. 627.0651, Florida Statutes, in determining the expected impact on losses and expenses.  By September 15, 2012, the office shall submit to the Governor, the President of Senate, and the Speaker of the House of Representatives a report concerning the results of the independent consultant’s calculations.”

In compliance with Florida’s public records laws, the OIR has distributed the full report, a copy of which is attached for review.

In its advisory today, the OIR cautioned that this report represents an initial draft and is subject to significant revision prior to issuance of a final product.  The report is missing necessary data, which is noted throughout the report, and has not been reviewed by the OIR.  According to the OIR, the report’s final conclusions “may, and probably will” change prior to its finalization on September 15.

The OIR emphasized that “Many may choose to focus on the statement on Page 4 of the Executive Summary: ‘The overall result is an indicated savings in … PIP premiums of 12% to 20%.  It is important that the public not be misled, keeping in mind that these are preliminary calculations, subject to the caveats listed below.'”


1.      This projected savings is on the premium indications – not the actual premiums.

Companies submitting rate increase requests typically show an indicated rate (what they are entitled to receive based on the data), and their rate request (what the company actually wants to be granted by the OIR).

Since the auto insurance rates are so competitive, most companies do not request their indicated rate. Instead they request something less to keep their rates competitive. Therefore, the savings may not be as much as 12%-20% as cited above.

Example A:  A company has an indicated rate of 52%, but only requests a rate of 29%.  A 12%-20% savings on the indicated rate could have no effect on the premium in this example. The indicated rate could drop to 32%-40%, which is still above the requested rate of 29%. In this scenario – the company could still be granted their 29% increase.

Example B: A company has an indicated rate of 35%, but only requests a rate of 29%. A 12%-20% savings on the indicated rate could have some effect on the premium in this scenario.  The indicated rate could drop to 15% to 23% which is below the requested rate of 29%. The company could be granted the rate increase of 15% to 23%, which could be a savings of between 6%-12% from what it could have received. 


2.      This projected savings is ONLY on the PIP portion of the premium.

The projected savings is only for the PIP portion of the auto premium.  In Florida, PIP is roughly 20% of the overall auto insurance bill for those people that select standard coverages.

Therefore, if someone pays $1,000 a year for their auto insurance, the PIP portion of the premium may represent only $200 of this bill. The savings mentioned above would only be applied to the $200 portion of the bill.

Example A:  Indicated rate is still above requested rate – no change in premium.

Example B:  The savings equated to 6%-12% of the premium bill, which is $12 to $24 off the $200 PIP portion. Thus, a person with a $1,000 auto insurance bill could see their premiums reduced to $976 to $988.  This, of course, assumes that the remaining $800 portion of their bill (bodily injury coverage, liability coverage, etc.) remains the same.


3.      This projected savings may actually mitigate premium increase, not reduce premiums.

The examples above are based on current bills, which is really used only for illustrative purposes. In actuality, all rate filings are based on prospective rates. In theory, the examples above would represent premium increase requests for 2013. Under the scenarios described:

Example A:  If this is a prospective rate filing — the company could be granted the 29% PIP rate increase as planned.  [The projected reduction in the indicated rate could have no effect.]  This increase could only be on the $200 portion of the PIP premium in our example – therefore – the person could receive a $58 premium increase; In our example, the person could pay $1,058 for their annual premium, instead of $1,000 – assuming the other parts of the auto rate filing remained the same.

Example B:  The company requested a 29% PIP rate increase – which could not be granted as the indicated rate drops to 15% to 23%.  Therefore, the rate increase could be $30 to $46; The person could pay $1,030 to $1,046 per year (all other parts of the premium held equal); this is still a premium increase, but not as much as it could have been without the projected “savings.”  [Again, this assumes other parts of the auto insurance premium for coverages like physical damage, and liability remain the same.]


4.      The projected savings will not be realized until January 1, 2013 – at the earliest.

The effects of HB 119 will not take effect until January 1, 2013.  Any rate filings reflecting this savings will most likely only effect renewal policies after that date.  If a person’s auto insurance policy does not renew until November 1, 2013 – that would be the first date that they would notice the “savings.”


5.      Insurers do not have to accept the savings calculated in the Pinnacle report.

Insurers are not legally obligated to accept the savings recommended in the Pinnacle report. The law requires insurance companies to make filings by October to either reduce rates by 10% or give the office a detailed explanation of why the premium is not being reduced by that amount.  The OIR expects detailed explanations to be filed by many insurers that show their prospective “savings” differs from the 10%, or differs from the findings in the finalized Pinnacle report.

In conclusion, due to the nature of the draft report, and potential for changes prior to the finalization of the report on September 15, the OIR would not recommend any conclusive stories showing definitive outcomes based on HB 119 at this point in time.

However, it specifies that, if the media do want to report on HB 119 savings using information from this draft report, media members should prominently explain the caveats above, and please explain that the OIR has not yet reviewed, or approved of these preliminary findings.



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