insurance journal florida supplement 2016-02-08

2016 Insurance Legislation to Watch

Crackdown on Insurance Abuse

Workers’ Comp Market Summary

Search is on for McCarty Replacement

FOCUS ON FLORIDA

2016 Insurance Legislation to Watch

Crackdown on Insurance Abuse

Workers’ Comp Market Summary

Search is on for McCarty Replacement

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February 8, 2016 INSURANCE JOURNAL-FOCUS ON FLORIDA | 3www.insurancejournal.com

Inside This IssueFebruary 8, 2016 • Vol. 94 No. 3 • Focus on Florida

4 Florida Fighting Back Against Assignment of Benefits Abuse

6 Legislation to Watch: HB1097 & SB596, HB671

Citizens Update 8 Citizens Releases Analysis of Florida Water Loss Claims

8 Citizens Policy Count Reaches Lowest Level on Record

10 Florida Insurance Advocate Group Calls for Transparency on McCarty Replacement Process

10 Candidates Wanted: Florida Insurance Commissioner Application Now Available Online

11 Florida Joins International Information Exchange Agreement

11 Serial Arsonist Arrested in Florida

FLORIDA COVERAGE

FOCUS ON FLORIDA

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12 Report: Florida’s Workers’ Comp Market Still Strong, but Uncertainty Remains

14 Florida Supreme Court Set to Hear Constitutional Challenge to Workers’ Comp System

15 FEMA Responds to Florida’s Flood Rate Request, Sort Of

16 Study: Florida’s Crackdown on ‘Pill Mills’ Linked to Fewer Painkiller Overdose Deaths

18 Florida Fraud Report

18 Legislation to Watch: HB997 & SB1112

19 Commentary: It’s Time for Florida to Pass Ridesharing Regulations

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4 | INSURANCE JOURNAL-FOCUS ON FLORIDA February 8, 2016 www.insurancejournal.com

News & Markets FOCUS ON FLORIDA

ance company doesn’t want to add defense costs unless they really think the claim is incorrect. They are motivated to settle and keep costs low.” In August, Gilway called the trend of increasing water damage claims “very dis-turbing,” with non-cat related water losses now accounting for 33 percent of every premium dollar paid by Citizens’ policy-holders. The company has been urging lawmakers to pass a solution to the prob-lem in 2016. Carlson said PIFF’s insurer members are not having this issue in any of the other states they operate in. Florida lawmakers are currently weigh-ing two bills – House Bill 1097 and Senate Bill 596 – that would address the abuse of the assignment of benefits provision (see sidebar on page 6). Carlson said efforts to pass legislation the last three years have been unsuccess-ful, but he is hopeful Citizens’ statewide platform has helped call attention to an important and costly issue for Florida con-sumers. “Citizens has the unique ability as a

Florida Fighting Back Against Assignment of Benefits Abuse By Amy O’Connor

Florida insurers, consumer and insur-ance advocates, as well as regulators,

are hoping 2016 may finally be the year that legislators address the misuse of assignment of benefits (AOB) for water loss claims that they say has become a rampant and costly problem in the state. The Consumer Protection Coalition, formed in January to raise awareness of AOB abuse, reports Florida AOB lawsuits have increased 90,000 percent since 2000. Claims of misuse have been primarily isolated to South Florida – particularly in Miami-Dade County – and the stories have stayed under the radar for the most part. However, the AOB abuse became a statewide headline this past summer when state-run insurer Citizens Property Insurance Corp. highlighted the problem in its 2016 rate filing and requested a rate increase of 3.2 percent for all personal lines policyholders. “I want to be crystal clear on this issue: water losses are the major reason Citizens is seeking rate hikes for the coming year,

especially in South Florida,” President and CEO of Citizens Barry Gilway said at its Aug. 25, 2015 rate hearing before Florida regulators. Michael Carlson, executive director of the Personal Insurance Federation of Florida (PIFF), said “highly litigious” groups of trial firms as well as certain types of contractors – many of them unlicensed water extractors – have been taking advantage of the AOB provision in homeowners insurance policies. In many cases, contractors are inflating the cost of repair work and suing insurance compa-nies if a claim is denied or not paid in full. Policyholders often don’t understand what they are signing over and unaware if a repair company turns around and sues their insurer. Law firms and repair con-tractors have been working together on executing these water loss claims because they consider it easy money. Carlson said in most cases, insurers opt to settle the claims. “Insurers are making a business decision on if it’s worth it to fight the suit or the [inflated] claim,” Carlson said. “The insur-

Law firms in Florida have been passing out American Express looking cards, complete with a thumb-drive, to help contractors in obtaining an assignment of benefits in water damage repairs. Photo courtesy of the Personal Insurance Federation of Florida

continued on page 6

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Chamber of Commerce, said the news of the problem has started getting out as con-sumers question why their rates are going up after several storm-free years. “The answer is inflated claims,” said Wilson. “The most important thing we are doing here is driving consumer awareness.” Critics, however, have questioned whether insurers are really trying to take away an important policyholder right and question if the AOB abuse is actually fraud, as it has been called. Carlson said an inflated claim is hard-er to prove than a phony claim, and it is even harder to know when a vendor has submitted an inflated claim vs. the actual claim. “Call it fraud, scam or abuse – we see those all as equivalent terms,” Carlson said. Regardless of what is called, Wilson says the problem is leading to higher costs for insurers and that is trickling down to poli-cyholders. “AOB was created a long time ago as a solution – as a protection for insureds – now what’s happened is trial lawyers and dishonest contractors have used what was supposed to be a consumer protection to scam the consumers,” he said.

public company to make all of its com-pany information available and not a lot of insurers can do that,” Carlson said. “[Citizens] can generate a lot of data and put together a lot of information that is impactful and sheds light on the cost.” And Citizens isn’t the only one tack-ling the problem. The Florida Office of Insurance Regulation (OIR) issued a data call in October to Florida’s largest proper-ty insurers to submit detailed information on water loss claims, mitigation services, litigation and assignment of benefits. OIR said at the time the data call would help evaluate the impact that assignment of benefits is having on property claims. As of Feb. 1, OIR had still not released the data call information but said it was work-ing on a compilation of the aggregated results. Citizens released an analysis of its data call results (see page 8) that the company said confirms the state is facing a serious problem. In the meantime, the Florida Chamber of Commerce, along with business leaders, consumer advocates, real estate agents, construction contractors, insurance agents, and insurance trade groups, have formed

the Consumer Protection Coalition with the goal to “protect consumers by ensuring homeowners maintain control of their insurance policies, rather than relinquish them to scheming vendors seeking to pad their profits using AOB.” Mark Wilson, president of the Florida

HB1097 & SB 596 The bills intro-duced in the Florida House (HB1097) and Senate (SB 596) to tackle the assignment of benefits abuse problem include requirements for post-loss assignment of claims or policy provisions not related to liability coverage. More specifically, the proposed legislation says policyholders with a covered loss can’t assign a claim until the policyholder has given notice of the loss to the insurer or their agent. The exception to this is if repairs must be performed and paid for to protect the property from further damage. The legisla-tion also allows policyholders to cancel an

assignment agreement without penalty or obli-

gation within three business days after the agreement is executed or

received by the insurer. The bill also states assignees cannot

perform any services not specifically approved by the policyholder in a separate contract that spells out the scope and costs of such repairs, and provides limitations on the assignee’s rights to collect money from, sue or claim lien on the property of the pol-icyholder. Personal Insurance Federation of Florida’s Executive Director Michael Carlson said keeping the insured in the loop will be a big part of preventing future abuse. “Letting the enforcement of the assign-

ment remain with the homeowner will keep them in the process and they will know what the vendor is doing,” he said.

HB671 If passed, this bill would prohibit con-tractors or other parties from receiving a referral fee for doing work in which they would be compensated by an insurance policy. It also would ban such parties from interpreting or advising insureds on cov-erage or duties under their property insur-ance policy, or adjusting a claim on behalf of the insured. Finally, insureds must be given an itemized estimate of the cost of services and materials for repairs before the agreement authorizing the repairs is executed.

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policyholders while keeping premiums as affordable as possible.” Citizens said its analysis reaffirms earlier studies showing that water loss claims are the leading cause of higher insurance rates, especially in Palm Beach, Broward and Miami-Dade counties. The Citizens analysis also looked at the age of the home to evaluate if the claim risk was higher and concluded that was not a significant cost driver for claims. Citizens expects that the trend of recent claims increasingly being represented by third parties under an assignment of benefits indicates a likely spike in costs going for-ward. By Florida law, predicted costs must be fully reflected in the rates established for Citizens by OIR. “The skyrocketing frequency of claims both inside and outside the Tri-County region, coupled with the demonstrated effect of both AOB and litigation as massive cost drivers, is an ominous sign,” said John Rollins, Citizens chief risk officer. “As a result, Citizens customers all over Florida can expect rate hikes in 2017 unless we can work with the Legislature and [OIR] to achieve reforms... that will lower predicted future non-weather claims costs.”

Citizens Releases Analysis of Florida Water Loss Claims

Water loss claims, exacerbated by assign-ment of benefits, are driving higher

rates in South Florida and increasingly across the state, according to a just released analysis conducted by Citizens Property Insurance Corp. for state insurance regulators. The insurer says the state is facing a serious issue that needs to be addressed. “The analysis fur-ther indicates that the frequency and severity of claims filed under an assignment of ben-efit (AOB) is growing at a disturbing rate,” Citizens said in a statement. Citizens conducted its analysis in response to a data call from the Florida Office of Insurance Regulation (OIR). The issue has become increasingly controversial since Citizens highlighted the problem in its 2016 rate filing, which called for overall rate increases. The insurer said that water dam-age claims were the main reason the insurer needed to increase rates for 2016. Citizens’ actuaries further analyzed data for both litigated and non-litigated claims, with and without an assignment of benefits, under which insureds sign over control of

their claim to water remediation compa-nies, contractors and/or attorneys. Citizens said it reviewed the non-litigated claims, which wasn’t required by OIR’s data call, to “improve the effectiveness” of its response.

According to Citizens, the analysis found that cases in which customers assigned benefits to con-tractors or remediation companies were almost twice as expensive on aver-age, and more likely to lead

to litigation. The average litigated claim cost is more than double that of a non-litigated claim, Citizens said, showing that AOB and litigation work both separately and together to drive average claims costs more than four times higher than that of a simple non-as-signed, non-litigated claim. “Consumers are losing control of their claims by transferring their authority to contractors and attorneys under the current assignment of benefit system,” said Chris Gardner, chairman of Citizens Board of Governors. “This analysis shows clearly that AOB is raising water claims losses. Those higher costs are paid by all policyholders. We have a dual obligation of protecting our

Citizens Policy Count Reaches Lowest Level on Record

Citizens Property Insurance Corp. announced Jan. 20 that it has reduced

its policy count to under 500,000. The company said in a statement that its policy count on Jan. 19 was 484,788, the lowest level recorded since Citizens was created in 2002. Total exposure has shrunk to $143.53 billion. The Florida Legislature created Citizens, a not-for-profit alternative insurer, to provide insurance to property owners who cannot find coverage in the private insurance market. Citizens said it has been able to return to its role as the state’s insurer of last resort. “This marks an important milestone and the culmination of efforts from all Citizens’

stakeholders,” said Chris Gardner, chairman of the Citizens Board of Governors. Following 10 years with no major hurri-cane, Citizens said Florida’s private property insur-ance market has returned to health, aided by the avail-ability of affordable reinsurance. In October 2015, all 67 Florida domes-tic property insurers passed a stress test administered by the Florida Office of Insurance Regulation that simulated various hurricane scenarios including a repeat of

the 2004 hurricane season. Citizens’ policy count over the years has fluctuated in response to changing market

conditions. The last peak policy count occurred in 2012 as Citizens approached 1.5 million policies and more than $500 billion in exposure. Citizens is required to levy assessments on Florida

policyholders if it exhausts its ability to pay claims. In 2011, Florida policyholders faced a potential assessment of $11.6 billion in the event of a 1-100 year storm. Citizens elimi-nated the assessment in 2015.



in the nation,” FAIR said in a statement. FAIR President and CEO, Jay Neal,

said the Florida private property insurance market has significantly improved since the current cabinet took office. FAIR honored McCarty with a Lifetime Achievement Award in acknowledgement of his work in the Florida insurance market. “This critically important appoint-ment needs industry knowledge, experience and balanced leadership

abilities to continue the course,” Neal said. FAIR is a non-profit educational organiza-tion that works to educate Florida consumers and insurance industry stakeholders about the effects of insurance public policy.

Florida Insurance Advocate Group Calls for Transparency on McCarty Replacement Process

The Florida Association of Insurance Reform (FAIR) has asked Gov. Rick

Scott and his Cabinet, which consists of Chief Financial Officer Jeff Atwater, State Attorney General Pam Bondi, and State Agricultural Commissioner Adam Putnam, to allow for input on the search for the next Florida Insurance Commissioner. “Florida Insurance Commissioner Kevin M. McCarty’s resignation presents an opportunity for Floridians to weigh in on the replacement process for this crit-ical position. Since the Florida Office of Insurance Regulation was created in 2003, McCarty has served as its only appointed Insurance Commissioner,” FAIR said in a statement.

More specifically, FAIR asked that a national search firm be hired to conduct a nationwide search, saying the Florida Cabinet should allow for input and review by stake-holders, especially consumers. FAIR also asked the search pro-cess be conducted in an open and transparent manner while “cautiously monitoring the participation of all local stake-holders to avoid any accusation of politicizing the process.” “FAIR believes that working together is the best way to solve even the most conten-tious issues in the Florida property insur-ance market, the most competitive market

Candidates Wanted: Florida Insurance Commissioner Application Now Available OnlineBy Amy O’Connor

The search is on for the next Florida Insurance Commissioner – the first one

to be appointed to the office since current Insurance Commissioner Kevin McCarty took office in 2003. McCarty announced on Jan. 6 he would leave office in May. The application is avail-able on the Florida Cabinet’s website. The application process is open until March 11 and all submitted applica-tions can be viewed on the site. The Florida Cabinet consists of Gov. Rick Scott, Chief Financial Officer Jeff Atwater, Attorney General Pam Bondi, and Agriculture Commissioner Adam Putnam. They will appoint the next commissioner with Atwater and Scott having veto power. McCarty reportedly earns $134,000 and at the Jan. 21 Cabinet meeting Atwater recom-mended increasing the salary for the next

commissioner. “I don’t know if there is an insurance mar-ket that is as dynamic as Florida,” Atwater told his colleagues. “We have had a leader here for 13 years at $134,000, but I don’t know

who we find at that number with the dynamics of the Florida market and the chal-lenges we face.” The Cabinet agreed to a salary range from the cur-rent amount up to $200,000. The final amount will be decided based on the chosen candidate. The Cabinet also agreed

during their Jan. 21 meeting to run the search and interview process as they have done for other open positions: applicants will apply online through March 11; each office of the Cabinet will select candidates and hold interviews; each office will recommend their chosen candidate during the Cabinet aides meeting on March 23; interviews will be held publicly during the Cabinet meeting on March 29.

The Cabinet’s goal is to have the new per-son in office before hurricane season starts and before McCarty leaves office on May 2. As of press time on Feb. 2, seven candi-dates had applied so far to the job that was officially posted online on Jan. 25. Five years or more of experience as a senior examiner or other senior employee of a state or federal agency having regulatory responsibilities over insurers or insurance agencies in the last 10 years is listed as a required qualification. Neither candidate rumored to be under consideration by Gov. Scott – Florida State Representative Bill Hager and former interim Citizens CEO Tom Grady – had yet applied. Florida insurance advocates have said they hope the Cabinet will take feedback and input from outside stakeholders and will keep the process “open and transparent.” Florida State Senator Jeff Brandes, who has worked closely with McCarty on Florida’s flood reform efforts, said he believes lawmak-ers will have an opportunity to write a letter to the Cabinet in support of an applicant. In addition, Brandes said “we will get a vote during the confirmation hearing.”

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News & MarketsFlorida Joins International Information Exchange Agreement

The Florida Office of Insurance Regulation (OIR) has joined as the

55th jurisdiction internationally to be admitted as a signatory to the International Association of Insurance Supervisors (IAIS) Multilateral Memorandum of Understanding (MMoU), Florida Insurance Commissioner Kevin McCarty announced in November. Established in June 2009, the MMoU is an international supervisory and information exchange agreement to facilitate and expe-dite the sharing of insurance regulatory information between member jurisdictions. This includes information regarding licens-ing, solvency matters, criminal and regula-tory proceedings. Each member is responsible for abid-

ing by strict confidentiality standards to protect the shared information, while also complying with its own state and federal laws.

The MMoU is considered an import-ant resource for insurance supervisors in cross-border global efforts to strengthen consumer protections.

FOCUS ON FLORIDA

Serial Arsonist Arrested in Florida

The Florida State Fire Marshal’s Office, which operates under the direction of

the Florida Department of Financial Services, announced the arrest of Travis Michael Pierce for allegedly setting two separate structure fires at the local golf club clubhouse in Altamonte Springs, Fla., on Jan. 1 and Jan. 4, 2016. Pierce, a former vol-unteer firefighter from Pennsylvania, is not new to arson charges, according to DFS. At the time of his arrest, Pierce was on parole for arson- and fraud-related fires set in Lancaster County, Pa., DFS said. The building involved in the most recent fires had been closed and was unoccupied. The first fire was set near the front door of the building. DFS stated that Pierce put this fire out and returned to the building on Jan. 4 to allegedly set the second fire in a utility closet. Pierce is charged with two counts of arson to a structure and burglary of an unoc-cupied structure.


FOCUS ON FLORIDA

News & Markets

three of the exits were insurers merging with another insurer. “These new entrants and voluntary with-drawals had no disruptive impact on the marketplace, as should be the case in a com-petitive market,” the report states. Bridgefield had 10.5 percent of the mar-ket share in 2014. That was down from the 11.34 percent the company had in 2013. The other top insurers in the state were FCCI Insurance Co. with 5.27 percent of the market and Zenith Insurance with 5.24 percent, followed by Technology Insurance Co., RetailFirst, Comp Options, Associated Industries, Amerisure, FFVA Mutual, and Twin City Fire. The top 10 companies carry a cumulative market share of 43.16 percent, with no one firm having an overly dominant impact on the market. Bridgefield, owned by Summit Holdings Southeast, was sold by Liberty Mutual at the

Report: Florida’s Workers’ Comp Market Still Strong but Uncertainty RemainsBy Amy O’Connor

The latest workers’ compensation report from Florida’s insurance regulator says

the state’s workers’ compensation market remained competitive and well capitalized in 2014, but reforms put in place by state lawmakers in 2003 may have reached their maximum effectiveness. Findings and analysis from the Florida Office of Insurance Regulation’s (OIR) 2015 Workers’ Compensation Annual Report reports this factor, coupled with several pending court cases, could impact the afford-ability and capacity of the Florida’s workers’ comp market going forward. The report’s results didn’t stray too much from OIR’s 2013 analysis as there has yet to be a decision on three of the four major workers’ comp court cases. The annual report of the state’s workers’

comp market in calendar year 2014 compared Florida with the six most populous states – California, Illinois, New York, Pennsylvania and Texas. In 2014, 256 privately-owned insurers actively wrote workers’ compensa-tion insurance in Florida, ranking it fifth of the six states. However, OIR’s analysis found that Florida is one of only two states where a private market insurance company – Bridgefield Employers Insurance Co. – is the largest insurance company in the state rather than a state-created residual market entity. Private insurance companies dominate the Florida market by writing more than 95 percent of the workers’ compensation coverage. In total, these private sector insurers wrote more than $2.5 billion in premium. Three insurers entered the Florida workers’ compensation market in 2014 and five insur-ers voluntarily exited the Florida market;


beginning of 2014 to American Financial Group and is now a member of AFG’s Great American Insurance Group. According to the report, AFG has 12.6 percent of the Florida workers’ comp market. That’s down from Liberty Mutual’s 16.9 percent the year before but still gives AFG the largest market share of any other insurer group in the state. AmTrust NGH is right behind AFG with 12.2 percent of the market, followed by Travelers with 6 percent, Fairfax Financial with 5.5 percent, and Hartford Fire & Casualty Group with 5.4 percent. Additionally, OIR said rates in the state have remained low. OIR ordered the National Council on Compensation Insurance (NCCI) to decrease rates by 4.7 percent for policies effective on Jan. 1, 2016. This was the second decrease in two years and represents a 60.3 percent cumulative reduction in Florida’s workers’ compensation rates since legislative reforms were passed in 2003. The report states this is an indication the reform measures delivered the desired result and lowered costs dramat-ically. However, the report goes on to warn that medical cost drivers, particularly in the areas of drug costs, hospital inpatient, hospital outpatient and ambulatory surgical centers, are higher in Florida than the countrywide average. It recommends lawmakers pass leg-islative reforms to address these issues.

Court Cases There are also still several pending court cases that could negatively affect the work-ers’ compensation market by leading to increased rates and the state’s inability to retain its competitive advantage in this area.One of the cases that has been in limbo for several years was over the constitutionality of the exclusive remedy provision of the Workers’ Compensation Act. A lower court judge found the provision unconstitution-

al but that decision was later overturned by the Third District Court of Appeals. In December, the Florida Supreme Court denied a request by the plaintiffs to review the case. The three other cases still pending include one over whether the 104-week statutory cap on temporary total disability benefits is unconstitutional and another questioning the constitutionality of the statutory attor-ney fee formula. The third case currently being reviewed by the Florida Supreme Court is also chal-lenging the constitutionality of Florida’s workers’ compensation law. The appellant in the case claims the 2003 law is an inadequate replacement for the tort system because of the elimination of permanent partial disabili-ty benefits (PPD) and the addition of a copay for medical visits (see page 14). OIR said in its report these cases are being closely monitored by Florida regulators. Florida’s residual market, the Florida Workers’ Compensation Joint Underwriting Association (FWCJUA), has remained small despite significant increases in the number of policies and in written premiums for the past several years. In an NCCI analysis of

the residual market based on size, Florida had the smallest percentage of premium when compared with 26 other states except for Idaho. Florida also had the smallest number of policies than all states includ-ed in the analysis except for Idaho, the District of Columbia, Alabama and South Dakota. Based on calendar year 2014 data, only 2.3 percent of Florida policyholders obtain coverage through the FWCJUA, which represents only 1.2 percent of the Florida direct written premium. “The residual market is small, suggesting the volun-tary market is absorbing the vast majority of demand,” the OIR report states. Florida’s aggregate loss ratios are also encouraging –

55.6 percent for the direct loss ratio and 63.8 percent for the direct loss ratio plus defense cost containment costs says the OIR report. In 2014, they were the second lowest among the six most populous states with only Texas having lower ratios. However, they were up slightly from 2013’s loss ratios of 50.77 and 57.10, respectively. Workers’ compensation fraud continued to plague the state, the report says, but the Bureau of Workers’ Compensation Fraud, within the Division of Insurance Fraud, made 540 workers’ comp fraud-related arrests for fiscal year 2014-2015, an increase of 14 percent. In excess of $4.3 million in restitution was requested as a result of the Bureau’s investigations of shell companies, labor brokers and check cashing stores. Overall, OIR said Florida’s workers’ com-pensation system is robust and not overly concentrated. It continues to allow for ease of entry and exit for insurance companies. OIR released its findings to the Florida Legislature. The report is required annually to evaluate competition in the workers’ com-pensation market and to use in its review of rate filings.



Deputy Chief Judge of Compensation Claims for the Florida Office of Judges of Compensation Claims and Division of Administrative Hearings David Langham said many have perceived the record on the Stahl case to be very abbreviated. Langham,

who is not involved in this case, said for that reason it is possible the Florida Supreme Court has been “generous” with allowing a number of amici briefs to assure vari-ous perspectives are all considered. “However, the

court has generally been willing to hear from amici in the constitutional challenge cases,” Langham said. Which party the high court rules in favor of in this particular case will be closely watched as Florida’s workers’ comp system continues to be challenged. In Stahl’s request for the Supreme Court to hear the case, he argues that “in the 12 years since the 2003 amendments, workers’ compensation premiums have been reduced by approximately 60 percent. It is no longer necessary to keep benefit reductions in place to contain costs.” Industry groups, such as the FAIA, say the current act “continues to compensate thou-sands of injured workers in a self-executing manner and without regard to fault.” Stahl, the FAIA and AAICP argue, has mounted an overbroad challenge to the state’s workers’ comp system, which he has no standing to claim. “Workers’ compensation is an amazingly complex system that affects every employer and employee in Florida,” Langham said. “It is critical that decisions about this system be reasoned and clear. The participation of amici is hopefully conducive to that out-come.”

Florida Supreme Court Set to Hear Constitutional Challenge to Workers’ Comp SystemBy Amy O’Connor

The Florida Supreme Court will hear yet another case challenging the constitu-

tionality of the state’s workers’ comp system on April 16, 2016. The case, Daniel Stahl v. Hialeah Hospital, et al., has been making its way through the state courts questioning if Florida’s workers’ comp system is an ade-quate alternative for injured workers since its major overhaul in 2003. More specifically, the case challenges if the elimination of a type of partial disability benefits by lawmakers is legal. The court scheduled the April 16 case hearing on Jan. 22 after previously agreeing to hear the case back in October. According to the Florida Supreme Court document, participants in the case will be given a maxi-mum of 20 minutes to argue their side. The case stems from a back injury the petitioner, Stahl, suffered while working as a nurse for Hialeah hospital in 2003, just a few months after the changes to the workers’ comp system went into effect, according to court documents. In Oct. 2005, his treating physician found he had reached his maximum medical improvement (MMI) and assigned him a 6 percent impairment rating. He was restricted to lifting nothing above 10 pounds, which classified his injury as career-ending because he could not return to work as a nurse. He was then entitled to impairment income benefits of 12 weeks and compensated $5,472 for his career-ending injury. It was later determined that Stahl did not meet the definition of permanent total dis-ability (PTD) and his claim for PTD benefits was denied. In his petition to the court, Stahl claims that the benefits available to him, and all injured employees since Oct. 1, 2003 when state’s workers’ comp reforms went into effect are “inadequate and therefore can-not be the exclusive remedy for on the job injuries.” The court documents filed say the

state’s workers’ comp law, as it is today, violates the U.S. Constitution. The plaintiffs also argue that the Florida legislature has eliminated injured employees’ right to sue and the availability of partial disability ben-efits without providing an adequate replace-ment. The suit also takes issue with the addition of a copay for medical visits after a claimant reaches their MMI. Multiple interest groups on both sides of the case have filed amici, also known as “friends-of-the-court” briefs, including the Florida Association of Insurance Agents (FAIA), the National Association of Mutual Insurance Companies, the Florida Chamber of Commerce and the Property Casualty Insurers Association of America on behalf of Hialeah Hospital. FAIA, whose motion was filed jointly with the American Association of Independent Claims Professionals (AAICP), argues the resolution of the case will have important ramifications for agents and claims profes-sionals in the state. “Petitioner, if successful, would imperil the entirety of the workers’ compensation act, clog the courts with costly lawsuits, and weaken Florida’s economy. [The petitioner’s] efforts should be rebuked,” FAIA and AAICP said in their brief. Attorney General Pam Bondi also submit-ted an amici brief on behalf of the State of Florida in support of the respondents. “Petitioner’s case is an improper vehicle for launching a broad-scale, facial attack on Florida’s workers’ compensation system,” the attorney general’s office states. On the petitioner’s side, workers interest and public safety groups such as the Florida Professional Firefighters, the Florida Justice Association and police associations have filed briefs as well.


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News & MarketsBy Amy O’Connor

The Federal Emergency Management Agency has responded to Florida’s

request to review the National Flood Insurance Program rates and it may not be as forthcoming and helpful as lawmakers had hoped. In a letter dated Dec. 29, 2015, FEMA Deputy Associate Administrator for Federal Insurance and Mitigation Roy E. Wright acknowledged Florida Insurance Commissioner Kevin McCarty’s October 2015 letter in which he asked FEMA to provide ratemaking data as it pertains to Florida to determine if the rates are “excessive, inade-quate, or unfairly discriminatory.” “FEMA is committed to ensuring its rate setting practices are fair, equitable, and transparent, and we appreciate your interest in supporting us in our efforts,” the letter to McCarty states. Wright’s letter goes on to mention a phone

call discussion with FEMA staff and McCarty on Dec. 21, that included two of FEMA’s actuaries. “We appreciate the colle-gial tone of that discussion

and look forward to continue working with you in this effort,” Wright wrote. “As we mentioned during that phone call, FEMA is constantly reviewing and refining its rate-set-ting methodology and works to increase the transparency of that methodology.” The letter outlines how FEMA has tried to increase the transparency of the rate-set-ting process, specifically since the passage of the Biggert-Waters Flood Insurance Reform Act of 2012. Wright also directed OIR to a June 2015 independent evaluation from the National Academy of Sciences that it says “provides a strong foundation as we continue to evaluate and improve our rate setting.” Wright concluded FEMA’s response by say-ing that the agency is in its first steps of its efforts to “increase transparency and ensure our rates are fair and equitable.” Wright said he welcomed further discussions with

McCarty on NFIP rate setting after McCarty has viewed the report. The response from FEMA, however, does not provide the rate information Florida law-

makers are looking for to ease the expense of the Florida flood insurance marketplace. “The response they sent basically says

FOCUS ON FLORIDA

FEMA Responds to Florida’s Flood Rate Request, Sort Of

continued on page 18


FOCUS ON FLORIDA

News & Markets

tions on pill mills as one potential way to reduce prescription painkiller overdose deaths.” In 2010, of the top 100 physicians pur-chasing the most oxycodone in the United States, 90 were in Florida. Much of the dispensing was done in cash-only pill mills where standard medical practices were rarely followed.

Study Details For the study, Kennedy-Hendricks and her colleagues compared Florida, before and after the implementation of pill mill laws, with North Carolina, a state with similar trends of prescription painkiller overdose death rates before 2010 and with no new restrictions on pill mills during the study period. They analyzed data

Study: Florida’s Crackdown on ‘Pill Mills’ Linked to Fewer Painkiller Overdose Deaths

A crackdown on Florida’s “pill mills” – clinics dispensing large quantities of

prescription painkillers often for cash-only and without proper medical examinations – appears to have dramatically reduced the number of overdose deaths in the state from these drugs and may have also led to a drop in heroin overdose deaths, new research suggests. Researchers at the Johns Hopkins Bloomberg School of Public Health in Baltimore published their findings in the American Journal of Public Health. Their report said an estimated 1,029 fewer peo-ple in Florida lost their lives to prescrip-tion painkiller overdoses over a 34-month period than would have had the state not taken aim at pill mills. Florida passed new laws in 2010 and 2011 establishing oversight over pain clinics and restricting the dispensing of opioids there, while major drug law enforcement initiatives arrested and prosecuted those operating them. Physicians were prohib-ited from dispensing Schedule II and III drugs, except in limited instances. The researchers also found substantially fewer deaths in Florida from overdoses involving either prescription painkillers or heroin during 2011 and 2012, a finding that calls into question claims that reduc-ing prescription painkiller diversion will increase overall heroin use. Rates of prescription painkiller addic-tion are at historic highs and a portion of those abusing these medications have switched to heroin, which can be cheaper and, in some cases, easier to obtain, the report says. Other research has found that four out of five new heroin users first used prescription painkillers. What could be happening in Florida, they say, is that with less access to prescription painkill-

ers, fewer people may be developing an addiction, which in turn may prevent peo-ple from later transitioning to heroin. “Florida’s focus on these pill mills seems to have been an effective way to reduce overdose deaths in the state,” says study leader Alene Kennedy-Hendricks, PhD,

an assistant scientist in the Bloomberg School’s Department of Health Policy and Management. “An added benefit of Florida’s increased over-sight of unethical busi-nesses and providers dis-

pensing large quantities of narcotics may be that they may have prevented new cases of heroin addiction from developing as well. Other states should consider restric-

Researchers report substantially fewer deaths in Florida from overdoses involving prescription painkillers.


on 11,721 Florida deaths and 3,787 North Carolina deaths between 2003 and 2012 in which an opioid (either a prescription painkiller or heroin) was identified as the primary cause of death. They examined changes in trends in death rates in North Carolina and pre-2010 trends in Florida to predict how many deaths were likely to have occurred in Florida had there not been this effort to rein in pill mills. Over the nearly three years, they estimated that 1,029 lives were saved in Florida, and the number of esti-mated lives saved grew dramatically each year as new measures were instituted to reduce pill mill operations in the state. From March 2010 until December of that year, the prescription painkiller overdose death rate in Florida was 7.4 percent lower than would have been expected absent Florida’s interventions, 20.1 percent lower

in 2011 and 34.5 percent lower in 2012. Heroin overdose mortality rates rose in each state at the beginning of 2011, but North Carolina’s rate of heroin overdose deaths increased much more rapidly than Florida’s rates. North Carolina’s rate con-tinued to rise, increasing four-fold from early 2011 to late 2012. In contrast, Florida’s rate of increase in heroin overdose mortali-ty rates during this period was substantial-ly lower. Previous research has also found that since 2010, Florida has seen substantial reductions in oxycodone-prescribing physi-cians, opioid prescribing and the diversion of prescription painkillers to people for whom they are not prescribed. “This study underscores that the sharp rise in prescription opioid overdose deaths has become a public health epidemic that is driven, in part, by major criminal

enterprises,” says co-author Daniel Webster, ScD, MPH, a professor of health policy and management at the Bloomberg School. “Our new study demonstrates that the right laws and strategic enforcement can prevent addiction and save many lives.” Expanding distribution of naloxone (a drug that can reverse the effects of an over-dose) and implementing evidence-based, medication-assisted treatment programs for opioid use disorders may also reduce overdose deaths, the researchers say. This study was funded by an unrestrict-ed research grant from AIG, Inc. “Opioid overdose deaths and Florida’s crackdown on pill mills” was written by Alene Kennedy-Hendricks, PhD; Matthew Richey, PhD; Emma E. “Beth” McGinty, PhD, MS; Elizabeth A. Stuart, PhD; Colleen L. Barry, PhD, MPP; and Daniel W. Webster, ScD, MPH.

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business in order for unlicensed agents to conduct nefarious or illegal transactions under a legitimate license. DIF’s investigation revealed that Ruiz was the actual owner of Rehab and Wellness Inc., a physical therapy clinic in Miami. Franco was the actual owner of Magic Hands Rehabilitation Center Inc., another physical therapy clinic in Miami. Unbeknownst to their straw owners, Ruiz submitted dozens of claim files to insurance companies for fictitious rehabilitative services totaling over $361,880 and Torres also submitted dozens of claim files to insurance companies for illegitimate rehabilitative services totaling $297,677. Both Ruiz and Franco were arrested on Jan. 14, 2016, and booked into Turner Guilford Knight Correctional Center on charges of operating an unlicensed clinic, insurance fraud, grand theft, and an orga-nized scheme to defraud. These cases are being prosecuted by the office of Miami-Dade County State Attorney Katherine Fernandez Rundle and if convict-ed, Franco and Ruiz face up to 30 years in prison.

Chiropractor Arrested Following $1.5M Insurance Fraud Scam Broward County, Florida Chiropractor Eric Wiegandt, 41, was arrested in October on multiple felony fraud charges related to a $1.5 million insur-ance fraud scheme. A joint state and federal investigation led by the Florida Division of Insurance Fraud revealed that Wiegandt allegedly orchestrated a scheme in which he fraud-ulently billed Blue Cross Blue Shield for services that were never rendered at his clinic, the Broward Spine and Rehab Center, located in Hollywood, Fla. Investigators believe that between 2013 and early 2015, Eric Wiegandt fraudulently signed and submitted nearly $1.5 million worth of fictitious and falsely represent-ed insurance claims. In return, Wiegandt received commission payments from BCBS in excess of $230,000. In the early spring of 2014, after losing his license for failure to complete con-tinuing education requirements, Wiegandt was evicted from his practice location in Coral Gables and opened a new location in Hollywood. The Hollywood Police Department arrested Wiegandt for allegedly continuing to conduct insurance-related business without an active license. Shortly after, the Division of Insurance Fraud reviewed the insurance transactions related to the clinic’s day-to-day operations. As a result, investigators discovered that Blue Cross Blue Shield had flagged Wiegandt during a proactive data analysis after rec-ognizing that his practice produced excep-tionally high totals in number of visits per patient and total amounts billed.

Records showed that patients who pre-viously visited Wiegandt’s Coral Gables location were allegedly receiving duplica-tive treatments in his newest Hollywood location, all of which were being billed to

BCBS. Most of the patients were found to have never received treatment and many had never been to the Hollywood location. Wiegandt was arrested on eight counts of healthcare fraud and the case is being prosecuted by the U.S. Attorney’s Office of the Southern

District of Florida.

2 Unlicensed Florida Clinic Owners Defraud Insurers of More Than $650K The Florida Department of Financial Services’ Division of Insurance Fraud (DIF) announced the arrest of two unlicensed clinic owners from Miami-Dade County. Noel Ruiz of Miami and Alberto B Franco of Hialeah were accused of being involved in a “straw owner” scheme that defrauded numerous insurance companies, resulting in more than $650,000 in financial losses. An investigation led by DIF revealed that in the time between December 2012 and September 2014, Franco and Ruiz both failed to carry the proper licensing required to own a rehab clinic and allegedly used a “straw owner” to bypass Florida’s licensing requirements. A “straw owner” is a person who owns a business or property on someone else’s behalf. By portraying legal ownership of the property or business through legal docu-mentation, the actual owner of the business is essentially left off of the books. In some cases, this scenario would occur as a legal way to keep the identity of the actual owner of the entity hidden. In other cases, a “straw owner” would act as a pawn to establish a

Florida Fraud Report

House Bill 997 & Senate Bill 1112The bill, as proposed, would end Florida’s personal injury

protection (PIP), also known as the No-Fault Law, by 2019 in an attempt to cut down on PIP fraud in the state. If passed, drivers would

be required to have a minimum of property damage and bodily injury liability coverage.

‘we will eventually comply maybe someday,” said Florida State Senator Jeff Brandes, who has been leading the charge, along with McCarty, to offer more affordable flood insurance options in Florida. “I am at a loss for why it is so hard for them to say either yes or no…The data is available.” OIR said it has continued discussions with NFIP on the issue and Brandes said he and other lawmakers will allow some time to go by to see what FEMA’s next response is. Brandes is confident that these discus-sions will move forward despite McCarty’s planned exit on May 2. “OIR has made it very clear that this is one of their highest priorities,” he said. “I think the next commissioner will absolutely continue to work for fairness for the Florida flood insurance market.”

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News & MarketsCommentary: It’s Time for Florida to Pass Ridesharing Regulations By Logan McFaddin

The sharing economy is here to stay and is no doubt flourishing. From Airbnb

to rideshare it’s definitely an exciting time for consumers as new products continue to enter the marketplace. Transportation Network Companies (TNCs) such as Uber and Lyft brought a new way of getting around town not just in Florida but in nearly every major city in the world. Simply

by using your smartphone passengers are able to connect with drivers in

their area and pay for their service all

through an app. As TNCs exploded in

popularity so did the question of regulation and consumer protections especially when it came to auto insurance coverage. Currently in Florida there’s a gray area regarding coverage that can leave Uber and Lyft drivers and passengers at financial risk if they are involved in an auto accident. Personal auto insurance policies are not intended for commercial use and will not cover damages if it’s determined the driver was using their vehicle for hire. Transportation network company drivers need to know that if they are operating under their personal auto insurance policy, they might not have the proper insurance coverage in place to protect them. There is also uncertainty regarding when auto insur-ance coverage provided by TNCs kicks in. While the insurance industry fully supports innovation, the drivers must have the prop-er coverage from the time they log in to the app to the time they log off. The Property Casualty Insurers Association of America (PCI) and the insur-ance industry worked closely with TNCs nationwide on how to best address the existing insurance gaps and protect driv-ers, passengers and the public. In March 2015, PCI joined several auto insurers,

other national trade associations and TNCs in announcing a model compromise bill, which provides a framework for legislation that will help bring clarity and consistency to TNC insurance laws while allow-ing innovation to thrive. The model compromise bill is meant to serve as a guideline for lawmakers as they grapple with how to address these issues in their state. In Florida, the 2016 Legislative Session is in full swing and law-makers are once again working toward a solution that protects consumers by requir-ing TNC drivers have adequate insurance coverage from the time the rideshare app is turned on to the time the app is turned off. Bills have been introduced in both the Senate and the House, and although there are some differences to be worked out, the bills are a great start in making sure the gaps are closed. House Bill 509, sponsored by Representative Matt Gaetz, addresses insur-ance coverage requirements for TNC drivers and also deals with other regulatory issues. The insurance coverage requirements put forth in HB 509 are similar to model legisla-tion that was agreed upon by the insurance industry and TNCs in March 2015. Senate Bill 1118, sponsored by Senator David Simmons, focuses solely on insurance coverage requirements for TNC drivers and does not include any language on reg-ulatory issues. While SB 1118 addresses the insurance industry’s concerns about gaps in coverage, the bill was amended to require more insurance coverage than the model legislation recommends. The amendment dictates that TNC driv-ers obtain mandatory bodily injury coverage from $50,000/$100,000/$10,000 and personal injury protection (PIP) coverage from app on to app off. But it also requires TNC drivers to carry $50,000/$100,000/$10,000 and PIP even when they are not logged in to the app. This potentially forces drivers to purchase more insurance coverage than

necessary. It is vitally important that vehicles used in TNC services are properly insured and the public is protected, but the insurance requirements need to be reasonable and workable for TNCs and their drivers. The model legislation, which has been passed in some form by 29 other states, strikes the right balance between protect-ing consumers and supporting innovation. Without policymakers taking action to clari-fy the necessary insurance requirements for TNC drivers and providing clear direction on what insurance coverage kicks in and when, drivers and passengers will continue to operate in a gray area and may not be covered if an accident were to occur. PCI commends Sen. Simmons and Rep.Gaetz for introducing Senate Bill 1118 and House Bill 509 and taking action to address these issues. PCI, along with our members, hope to see a continued dialogue on these bills and that Florida lawmakers arrive at a much-needed solution that protects con-sumers and puts the necessary insurance coverage requirements in place. The Florida House of Representatives passed House Bill 509 on Jan. 27 with an overwhelmingly supportive 108-10 vote count. Senate Bill 1118 passed the Senate Committee on Banking and Insurance on Jan. 19 and its next stop is the Senate Judiciary Committee.

Logan McFaddin is PCI’s regional manager, State Gov-ernment Relations. She is based in Tallahassee, Fla.

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insurance journal florida supplement 2016-02-08

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