There is a serious developing issue in the insurance industry that Florida’s homeowners need to be aware of: assignment of benefits abuse. It’s a problem that started in South Florida and has rapidly spread over the state, and it can have dire consequences for homeowners who seek or have sought major repairs on their homes.
What is it?
AOB abuse stems from practices that began in South Florida insurance markets in which homeowners who held insurance and needed repairs on their homes would assign their right to seek reimbursement from insurance companies to third-party contractors. This was usually done at the contractors’ behest. The contractors would then file lawsuits against the insurers if the claims were denied or the payments reduced, and reap the reimbursements from the insurance companies. In many cases, the companies wouldn’t know about the claim until the work was done. Between 2010 and 2015, the Office of Insurance Regulation found that water damage claims alone with assignments spiked 10 per cent. This abuse of assignment of benefits continues unabated, and is even spreading north to Central Florida markets at a pace so alarming it’s gotten the attention of both the State Legislature and out of state insurance-rating companies.
On February 14th, Ohio-based insurance-rating company Demotech Inc. announced that in March they plan to reduce the stability rating of many Florida insurance companies from A to B. This decision is based heavily on how AOB abuse has created what they call “an uncertain operating environment” in the state. This downgrade can directly affect the mortgages of thousands of Florida homeowners, since mortgages backed by Fannie Mae or Freddie Mac require A-rated property insurance, or else the mortgage could be in default. About 20 to 30 per cent of the Florida market could be affected.
What’s being done about it?
The state government has been scrambling to find a way to stem the tide of insurance abuse and protect homeowners at risk. The Chamber of Commerce has generated public support for AOB restrictions with a public relations campaign, and there is a bill in the Senate Judiciary Committee that, if passed, would sharply restrict how repair contractors utilize AOB practices. The bill was advanced by the Insurance and Banking Subcommittee on January 25th
If you’re a Florida homeowner concerned about how AOB abuse might affect you or your mortgage, the best thing to do is to arm yourself with information. Contact your local and state Chamber of Commerce, or a Showcase agent if you think you might be at risk. If a contractor making repairs on your home tries to persuade you to assign benefits to them or a third party, contact your insurance company before agreeing to anything. Educating yourself and using local resources will help you avoid becoming an AOB abuse statistic.