Rising water claims, assignment of benefit (AOB) abuse and litigation are destabilizing the Florida property insurance market and threaten to reverse the progress made by Citizens to provide rate decreases to its policyholders. Misuse of the one-way attorney fee provision and the accompanying AOB litigation is driving up the cost of insurance and threatening the affordability of home ownership for many Floridians. A report issued by the Florida Justice Reform Institute found that between 2010 and 2016, the total number of AOB lawsuits increased from 25,214 to 100,087.
An AOB is a contract between a policyholder and a third party, such as a roofer or a contractor, giving the third party the right to deal directly with the policyholder’s insurance company and receive payment for the claim.
Some third parties are telling policyholders that work only can begin if they sign an AOB. Should a policyholder sign an AOB, they need to be aware of the following:
- They have limited authority to deal with their insurance company directly.
- They have little or no say over the type or extent of the work performed.
- They have little or no say over the settlement payment.
- The service provider could put a lien on the property for unpaid services.
- They cannot comparison shop for the best quality and price.
- They have limited recourse when the service provider has inflated the claim or misrepresented damage and repairs.
- They cannot withhold payment if they are unsatisfied with the quality of work.
In many cases, third parties are filing inflated claims and lawsuits against insurance companies over claims without the policyholder’s knowledge. Without legislative action, Citizens and private insurance companies will have little choice but to request higher rate hikes. This situation is especially troublesome for low and moderate income policyholders, who are least able to afford it. Citizens’ policy count could begin to swell as private insurance companies exit regions of the state.
Citizens’ agents can help curb AOB abuse and keep rates stable. Help your customers understand the importance of callingCitizens First as soon as they know or suspect they have damage. Citizens is available 24/7 to take calls at 866.411.2742.
Citizens also has an AOB brochure under Brochures in the Learning section of its website. This brochure, available in English and Spanish, includes important information about AOBs and Citizens’ loss reporting and repair requirements. Agents can order printed brochures by emailing Sara Golding with the quantity needed, language preference and mailing address.
To increase AOB awareness with policyholders, Citizens soon will send anemail to Citizens Homeowners 3 – Special Form (CIT HO-3), Citizens Homeowners 6 – Unit-Owners Form (CIT HO-6) and Dwelling Property 3 – Special Form (CIT DP-3) policyholders in Broward, Miami-Dade and Palm Beach counties.
For more information about how Florida can protect its homeowners from rising rates, visit theConsumer Protection Coalition.
Florida’s ongoing battle with assignment of benefits (AOB) claims abuse was not a new topic in 2017, but it was certainly one of the hottest ones for Southeast readers.
From threats of insurer ratings downgrades caused by the escalation in litigated water loss claims accompanied by an AOB, to the push for legislative reform to the state’s one-way attorney fee statute that the industry says has fueled the statewide abuse, there was no shortage of stories on the topic this year.
“The [AOB) situation in Florida is unlike any other in the United States,” Ohio-based Demotech, which rates more than 50 Florida insurers, said in February. It announced at the time it had changed its ratings criteria for insurers in Florida because of what it called an uncertain operating environment in the state.
The ratings agency also announced several insurers could see ratings downgrades if they did not beef up their reserves for future claims.
However, after a number of insurers heeded Demotech’s warning, the company announced in March it would hold off on large-scale ratings downgrades. The company said the Florida carriers it rates added $355 million in additional reserves and policyholder surplus to strengthen their standing and avoid a ratings downgrade.
The industry prodded and pleaded with the Florida Legislature during the 2017 legislative session to enact meaningful AOB reform. Most in the industry backed a bill that would have closed a loophole in the state’s one-way attorney fee statute that is blamed for encouraging the abuse among trial lawyers and unscrupulous contractors or water remediation firms. But the bill failed to get a hearing in the Florida Senate.
Another bill that chipped away at incentives for third parties to sue insurance companies was passed by the Florida House of Representatives, but it wasn’t enough in the end as Florida lawmakers failed to enact reforms for the fifth year in a row.
Once it was clear legislative reform was not in the cards this year, insurers and Florida regulators began taking other steps to combat abuse.
“We will continue to see homeowners’ insurance companies raise their rates for our consumers in a best-case scenario, and in a worst case scenario just simply stop offering their products in certain regions of the state,” Insurance Commissioner David Altmaier told the Florida Cabinet in June.
The industry was on high alert for AOB abuse in the aftermath of Hurricane Irma. Florida regulators, carriers, industry trade groups and lawmakers all echoed the same advice to policyholders: contact your agent or insurer and file claims, and avoid signing anything that gives away your insurance policy rights.
“We’re working to protect Floridians from AOB scams, and the more Floridians know and are informed, the better we can protect them,” said Florida Chamber of Commerce’s Vice President of Public Affairs Edie Ousley.
With the 2018 Florida legislative session set to begin on Jan. 9, the industry has again placed any hope of AOB reform on the shoulders of Florida lawmakers. Whether lawmakers respond is yet to be seen, but the industry is not optimistic that the primary driver of the abuse – the one-way attorney fee statute – will see changes.
“The bottom line is attorney fees are the number one issue. Until we fight that attorney fee battle, the process in place will just continue to be taken advantage of,” said Logan McFaddin regional manager for the Property Casualty Insurers Association of America (PCI).
Top Florida AOB Stories of 2017:
Want to stay up to date?
Get the latest insurance news
sent straight to your inbox.