On the first day of this month ( July 1, 2019) a change in Florida insurance law took effect. The law emerged from a 7-year-long debate involving insurance reformers and companies. It’s known as “assignment of benefits reform”. Florida Insurance Commissioner David Altmaier said the new law would “…protect consumers from those who would take advantage of them by abusing the Assignment of Benefits process”. The media promptly questioned this. This Florida insurance reform, they warned, would take a long time to benefit consumers. If it ever does.
Let’s try here to understand what the law’s about, first of all. Then, we can judge what to expect for our premiums and benefits going forward.
ASSIGNMENT OF BENEFITS
Assignment of Benefits (AOB) means that a policyholder signs all his insurance policy rights to a third party. In practice, this third party is generally a contractor. Thus, the contractor accepts the assigned benefits as payment for the repair work he does for the homeowner. The consumer, on the other hand, gets repairs done with no cash out. The contractor takes the risk of the insurer denying or underpaying claims. But he lands the job, in a competitive market. Fair enough, as far as that goes.
The problem, however is that shady( mostly unlicensed) contractors then file phony or exaggerated claims. Insurers, of course, deny or dispute these bogus claims. These contractors then sue the insurers. They and their lawyers know the odds are good the insurer will settle out of court by paying up.
If all that seems like a lot of trouble for the contractors and their lawyers, well, the math says it pays off. If an insurer promptly pays a bogus claim, the contractor wins. Where the insurer disputes or denies a claim, the cost of filing suit and paying the lawyers still leaves the contractor a profit.
The big losers from this Assignment of Benefits abuse are consumers. Yes, those who are able to get repairs done promptly without laying out cash do benefit, in the short term. But all consumers lose in the long run. Insurance abuse inarguably drives up premiums. We all pay more. Moreover, the abusive contractors’ lawsuits clog our already – overburdened court system.
FLORIDA INSURANCE REFORM
The 2019 AOB reform law provides for tighter restrictions and more scrutiny on the practice of assignment of benefits. It requires contractors to report their AOB activities in much greater detail to the State. This should enable State regulators to spot abusers. The law allows insurers to sell policies that don’t allow assignment of benefits in the first place. It also changes how lawyers get paid for pressing AOB-related suits against insurers. AOB abuse is a less financially-attractive practice under the new law. Greater chance of getting caught, lower chances of getting paid for bogus claims.
Will it work? Perhaps. So far, the outcomes are mixed. There’s growing concern that consumers will be hurt when insurers decide their best option is to eliminate AOB clauses from their policies. In that case, some homeowners will find it more difficult to get needed repairs done promptly. What’s certain is that the changing game makes it all the more important to touch base with Florida Loss Public Adjusters when your property has been damaged. It’s now even more difficult for homeowners to go it alone.