Cm4310 Lca Assignment Of Benefits

You may have figured out that I like to watch the insurance news. I mean, I work for the company that produces my favorite insurance news (Insurance Journal) and I don’t say that just because I work here. I was an IJ reader before I became the Director of the Academy. Anyway, I’m really interested in the what laws are passed and how the different regulators operate. I’m actually a fan of the way that insurance regulation in the US has evolved over the last 300 years or so.

An item that is particularly interesting where I live in Florida is the topic of Assignments of Benefits. For those among us who aren’t dealing with this issue yet, let’s define what we’re talking about before we dig into the problem and maybe what Florida is trying to do to fix it.

An Assignment of Benefits is a simple document that allows someone, other than the insured to receive the money payable by an insurance policy. You signed one the first time you visited your doctor. It’s among the stack of paperwork when you first become their patient. It’s what allows them to send the bill to your health coverage without you having to pay the whole bill, submit it to the health coverage, and wait for the check to come from them. It makes the whole process of paying for medical needs faster and relatively less painful.

That’s not where the problem has come up. The problem is coming up when there has been a property loss. The insured does what he thinks is right, he contacts a contractor who comes out, examines the damage, creates an estimate, and then tells the insured that they can get started as soon as they sign this little form. What’s that form? You already know that it’s the assignment of benefits form. What happens next depends on the contractor. An ethical contractor works with the insurance company by providing estimates, letting the adjuster examine the property, makes the needed repairs and charges the insured their deductible amount. The home is repaired, and everyone is happy.

What seems to be happening more often is a little different. Somehow between the signing of the assignment of benefits and contact with the insurance company, either the contractor’s estimates become inflated or they simply contact their normal attorney, who files suit against the insurance company. In the end, the insurance company ends up paying more for the repair, the insured might end up having to write a check (or worse, end up with incomplete work), and homeowners’ rates for everyone go up.

I hear you asking if I have a solution to recommend, rather than just complaining about a problem in my state. That’s a fair question to ask. Right off, I don’t know what the solution is. I’ve read the text of the bill that’s before the Florida legislature and it looks like it might help. Do I think it’ll solve the problem? Not really. I believe that the vast majority of contractors are honest, hard working people who use assignments of benefits to make sure that they get paid for the work that they do. I also believe that most insureds are honest, too. I also believe that there are a few people that think that all they’re doing is taking money from insurance companies and no one gets hurt.

Let’s be clear about this, please. Whenever someone causes the costs of an insurance company to go up, like by inflating claims beyond what would be reasonable, those costs are not just absorbed by the insurance company. They aren’t even just absorbed by those new insuretech companies that promise transparency and giving back. Those costs are absorbed by consumers. In the end, the company will turn a profit somehow. They may not this year, but next year they will. By the way, the contractors (and others that work hard to get extra money out of insurance companies) are making their money, too. In the end, the only one that suffers is the consumer.

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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:


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About Amy O'Connor

O'Connor is the Southeast editor for Insurance Journal and associate editor of More from Amy O'Connor


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