With just a few weeks before the start of Hurricane Season 2017, all eyes turn to Florida, which had remained relatively unscathed by Mother Nature's torment in recent years until Hurricane Matthew barreled up the Atlantic coastline last September — leaving behind more than $800 million in claims in the Sunshine State.
Yet there is another destructive storm hitting Florida that's causing untold damage. This tempest has been created by unscrupulous contractors, lawyers and their legal tool: Assignment of Benefits. It's one that has inflicted countless painful injuries to not only the insurance industry but also to homeowners as well.
After a storm or an event as simple as a broken water pipe, a policyholder may assign the benefits of the homeowner's policy to a contractor to fix the problem. Of course, some unfortunate policyholders sign over their benefits but they never see the work done even though their insurance company paid the vendor. But it's exploitation of this system by profiteers — certain trial lawyers and contractors — that has led to a torrent of fake and inflated claims, lawsuits and rapidly rising insurance premiums.
Most AOB claims for water damage
What type of claims are subject to this abuse? Primarily water claims. In December 2014 alone, Citizens Property Insurance Corporation, the state's insurer of last resort, received 562 AOB lawsuits, 513 involving water claims — nearly all of them from Miami-Dade, Broward and Palm Beach counties.
The freewheeling filing of these lawsuits has had an enormously negative impact on policyholders, hitting them where it hurts most – their wallets. In fact, the Florida Office of Insurance Regulation said that the severity of water claims has jumped 28 percent since 2010 while claims frequency has increased by 46 percent from 2010 to 2015.
Insurance Commissioner David Altmaier has cautioned that without reforms, Florida's policyholders could expect to see a 10 percent increase in premiums each year going forward. If this predilection for ill-gotten gains is left unchecked, AOB abuse could escalate to a full-scale consumer crisis, much like the PIP [personal injury protection/no fault] fraud that Florida has experienced.
After the 2004 hurricane season that saw five major storms pummel the state and the ensuing legislative actions, Florida's insurance landscape was nearly decimated. But changes in the laws and support from elected officials have righted its path, and after a 10-year rebuilding program, the insurance market is strong. Yet, it's mind-boggling to learn that the Florida Justice Reform Institute reports that from 2010 to 2016, total AOB lawsuits grew from nearly 25,000 to more than 100,000, an increase of almost 300 percent.
Reform a top priority
Thankfully, AOB reform is a top priority for the property & casualty insurance industry in Florida, led by the Office of Insurance Regulation. In his presentation before the Florida Cabinet, Altmaier described how the severity and frequency of water losses are spreading throughout the state and the effect these losses are having on homeowners and other consumers.
Jeff Atwater, Florida's chief financial officer, bolstered Altmaier's remarks by adding that if something is not done about AOB abuse and fraud, insurance regulators will be required to approve rate increases to the detriment of policyholders. Both were adamant that there is no evidence whatsoever to suggest the dramatic increase in such litigation is the result of consumer complaints against insurers.
NAMIC is actively engaged in the legislative activities on this issue and is a working member of the Consumer Protection Coalition, which was formed in 2016 to push for AOB reform through common-sense legislation, and we continue working on the ground with other stakeholders.
There are some frightening unintended consequences that have come with this issue. A number of Florida property insurers face financial-rating downgrades that could affect 250,000 policyholders statewide, forcing them to search for a new insurer — more than likely, Florida Citizens. Then there is the arrest of a Miami man in December on charges that he impersonated a licensed public adjuster in his scheme to defraud Citizens of nearly $100,000 in inflated insurance claims. Citizens put the onus on AOB.
Policyholders are on the hook, too, and not just for higher rates. If a contractor's costs aren't fully covered by the insurance payment, that contractor can slap a lien on the homeowner's house.
Citizens CEO Barry Gilway said in an editorial meeting with the Tampa Bay Times (which was reported by the newspaper), “Citizens often doesn't get a chance to inspect the damage. It doesn't get a say in what repairs are made or supporting documentation for the repairs. It gets a bill, and it relies on a consultant to determine whether the bill falls within an acceptable range. That's like paying for car repairs without seeing the damage and knowing whether it needed a new fender or paint for a scratch.”
The insurance industry is working hard to get this tempest — Hurricane AOB — taken care of before the next storm hits the state; if not, there will be more damage to Florida citizens and the industry to contend with for years to come.
Neil Alldredge is senior vice president, state and policy affairs for the National Association of Mutual Insurance Companies (NAMIC).