Commentary: Florida’s Failure to Pass AOB Reforms Will Impact State Insurance Market

Following the 2016 Florida Legislative Session’s failure to pass essential assignment of benefit (AOB) reforms, the insurance industry and Citizens Property Insurance Corp. are working in tandem with the Florida Office of Insurance Regulation (OIR) to find workable administrative measures to help combat this kickback-driven lawsuit-for-profit scheme.

The sad truth is AOB abuse is organized and carried out by only a handful of vendors and lawyers and will ultimately result in much higher rates for South Florida customers.

State-sponsored Citizens Property Insurance Corporation’s rate projections indicate that average premiums in the tri-county could climb from $2,800 to $4,000 in the next five years, even though the area hasn’t experienced a hurricane in the past decade. In Miami-Dade County alone, Citizens projects a preliminary 2017 rate increase of 189.6 percent. (By law, Citizens cannot raise its rates more than 10 percent per year.). The remaining Florida counties are projected to receive a 10 percent decrease in rates.

Legislation originally filed by Florida State Sen. Dorothy Hukill (SB 596) and Rep. Matt Caldwell (HB 1097) would have protected consumers by preventing a handful of vendors and their lawyers from gaining control of homeowners’ insurance policy rights. Unfortunately, these bills died as a result of Senator Miguel Diaz de la Portilla, chairman of the Senate Judiciary Committee, not permitting SB 596 to be considered.

Instead, Senator Diaz de la Portilla sponsored his own bill, SB 1248, which he described as a compromise measure, except no negotiations ever took place. The membership opposed that bill because it did nothing to address the cost drivers behind AOB abuse, and would have cemented these abuses into place, preventing any further reform.

It is important to note that a select few law firms have been responsible for the majority of the state’s skyrocketing AOB lawsuits. Of the 6,000 trial lawyers admitted to The Florida Bar, 40 percent of all AOB lawsuits involving restoration vendors in 2015 were filed by just five law firms and 57 percent were filed by 10 law firms. In total, 85 percent of these suits were filed by only 31 law firms.

Based on information from 25 Florida insurers collected on an OIR data call published on Feb. 8, frequency of water claims per 1,000 policies has increased by 46 percent since 2010. This represents an average annual increase in frequency of water claims of 8.3 percent each year and the average severity of HO-3/DF water claims increased by 28 percent for the same period.

Other findings show that the combined impact of these changes has resulted in an average 14.2 percent increase in water losses each year for the past five years. Increases of AOB claims were seen in all regions, growing from 5.7 percent to 15.9 percent of all claims since 2010. This increase in the use of AOBs was seen across all regions.

Citizens analysis has consistently shown that AOB claims are increasing frequency and severity of claims as well as a rapidly expanding docket of lawsuits. Citizens reported that in many cases, they were not informed of the loss until after repairs were made. On average, Citizens said it now receives first notice of loss on non-cat water losses 30.3 days after the loss occurs. Such delay is accelerating litigation. Citizens is now adding an average of 650 new suits a month.

Like Citizens, the FPCA supports keeping homeowners in charge of their claims by limiting the ability of contractors, public adjusters and attorneys to seize control of the policy’s rights and benefits. As an example, special one-way attorneys’ fees provided to the policyholder by statute should be reserved for the policyholder only, and not transferred to a contractor who has a very different economic interest. This abuse alone is encouraging the growing landslide of costly litigation.

Additionally, the FPCA supports the fundamental reforms outlined in the original bills they supported, including requirements that a valid assignment of benefits must:
• Divest the policyholder of the right to payment only.
• Be provided to the insurer within 3 days of execution.
• Contain an estimate for proposed services & materials.
• Allow a 3-day rescission period (5 days in a state of emergency) as long as the vendor gets paid for work actually performed.
• Disclose a policyholder’s rights as it relates to the agreement executed.

And insurance companies and associations aren’t alone in wanting to control AOB abuses. A broad-based group of business leaders, consumer advocates, real estate agents, construction contractors, insurance agents and trade groups, and the Florida Chamber of Commerce formed The Consumer Protection Coalition to push for reforms to end AOB abuse.

With Insurance Commissioner Kevin McCarty retiring May 2, a new Commissioner will have his or her hands full with this growing problem right out of the gate. The FPCA stands ready to work with that individual and Gov. Rick Scott, as well as his Cabinet, to see what can be done at an administrative level to protect consumers from unscrupulous vendors and attorneys and, most of all, rapidly rising insurance rates.