How the Florida Insurance Industry Hopes to Rein In AOB Crisis

30 Jul
Florida Insurance AOB Crisis

The AOB problem mainly stems from less than honest roofing and water remediation contractors who ask homeowners to sign an AOB form when they are performing work on their homes.

Industry experts, at a recent Insurance Journal webinar looked at ways to battle AOB (assignment of benefits) fraud that is pushing up the cost of homeowners insurance in Florida.

“I think the number one thing the insurance industry can do is link AOB (assignment of benefits) to the impact that it’s having on the individual consumer and the huge impact it’s having on the premiums that the consumer’s paying,” said Barry Gilway, president, CEO and executive director of Citizens Property Insurance Corp. according to an Insurance Journal article.

AOB Fraud Continues to be a Problem

AOB fraud continues to plague Florida and is impacting homeowners insurance rates. The AOB problem mainly stems from less than honest roofing and water remediation contractors who ask homeowners to sign an AOB form when they are performing work on their homes.

An AOB form basically signs over the rights of a homeowners insurance policy to the contractor, allowing them to bill the insurance company directly for repairs. Unfortunately, many of these contractors submit inflated or even fake claims. When the insurance company denies the claim the contractors work with an attorney to file a lawsuit.

Florida has a one-way attorney law so insurance companies must pay not only the inflated claim but also the attorney fees if the court finds the insurance company has underpaid the claim by any amount. There is very little downside for contractors and lawyers who decide to sue and all of these legal actions push up rates for everyone as insurance companies must deal with the additional expenses that lawsuits bring.

Litigation has increased dramatically across the state because of AOB abuse. Data from the Florida Department of Financial Services shows that there were 405 AOB lawsuits across all 67 Florida counties in 2006, that number skyrocketed to 28,200 by 2016.

The state run insurer of last resort, Citizens Property, has seen the majority of the abuse. In its 2019 rate hearing, Citizens Property projected they would spend roughly $70 million in 2018 defending AOB related lawsuits which came out to 17 percent of the total premiums it collects.

While the problem was mainly confined to the Tri-County region of South Florida, it is now spreading across the state.

“Ultimately, these inflated and often fake claims and their corresponding lawsuits drive up the costs of home and auto insurance for our consumers,” McFaddin said in the Insurance Journal article.

While the insurance industry has taken certain measures to curtail AOB abuse, including policy changes and pulling out of areas where abuse has been the worst, raising rates has been the most common solution.

“For the first time in my history – and I’ve been in the business 48 years – I’ve actually seen the Office of Insurance Regulation ask carriers to increase rates higher than they originally estimated. That happened three times last year,” Gilway said during the Insurance Journal webinar.

In its 2019 rate filing, Citizens plans to increase rates in 60 out of 67 Florida counties, mainly due to AOB fraud.

Consumer Education is Key

The Florida Legislature has been unable to pass meaningful reform to help curb AOB fraud so now the insurance industry is hoping that educating consumers on the impact AOB lawsuits are having on premiums will help contain the problem.

“Consumer awareness is really critical in preventing AOB abuse from happening in the future and to control these costs,” McFaddin said in the Insurance Journal article. “Our policyholders need to understand that when they sign on the dotted line of an AOB contract, they’re relinquishing their rights under their policy to a third party.”

Citizens is attempting to combat fraud and abuse on a number of fronts, including educating its customers. Their “Call Citizens First” campaign encourages their policyholder to contact their agent or Citizens directly after a loss and before they sign an AOB form.

In addition, they will be launching a managed repair program on August 1st, which incentivizes homeowners to use Citizens approved contractors when making repairs to their homes due to an insurance claim. Changes in Citizens Property policy language have helped drop AOB lawsuits to 7,600 from 10,000 last year. Other insurance companies in Florida are following Citizens when it comes to policy language changes.

However, most panelists at the Insurance Journal Webinar agreed that the industry must do a better job of educating consumers about exactly what an AOB is and why they should not sign one. Unfortunately, consumers don’t seem to understand the severity of AOB fraud until their rates start going up.

The industry is pushing agents to play a more active role in educating their clients whenever they have contact with them whether it is in person, on the telephone or via email.

Still Hoping for Action From the Legislature

Consumers are not the only ones that need to be educated about the seriousness of the AOB issue.

“It’s really important that we do a much, much better job educating the population that this is having a bottom-line impact on their rates, their premiums. And in order to do something about it, we really have to do a better job of educating the legislature because we’re not getting the traction that we need there,” Gilway said in the Insurance Journal article.

Trial lawyers and contractors have been able to convince lawmakers that the insurance industry is the enemy and doesn’t pay claims fairly or on time, making the use of AOB forms and lawsuits a necessity.

While some progress has been made in the Florida House, the Senate is still not convinced that industry wide reform is necessary.

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