Dealing with an insurance claim adjuster is not a task most insureds ever become comfortable with. They hear so many stories of how people were treated when they submitted a claim they just don’t want to deal with it.
In an effort to expedite the claim process, some states have a provision where an insured can assign his or her homeowner insurance benefits over to a contractor so the contractor can deal directly with the adjuster, leaving the insured free to go about his business.
Uptick in AOB Claims
Florida has had this provision in their insurance regulations for nearly 100 years without any particular glitches in its implementation, but then something began to happen. In 2006, there were a total of 405 AOB claims in all of the 67 counties of Florida. In 2016 those AOB’s had reached 28,200, and claims with AOB’s associated with them in 2017 had frequency and severity to reflect an average annual increase of 42.1% in water loss claims.Hail loss claims followed with a similar pattern. From 2000 to 2012 hail claims reflected 1-2% of total claim volume. 2013 showed a 700% increase with 7.9% of total claim volume coming from hail losses. From 2007 to 2012, 1.8 billion paid for hail claims, where 2013-2014 that expenditure rose to 8.3 billion without a corresponding increase in hail events.
According to David Altmaier, Florida Insurance Commissioner, in a hearing before the Florida State Legislature February 7, 2017, when they investigated this incredibly high uptick, they thought they would find consumer complaints might be an indicator for this event. In checking with the Consumer Complaint Division in the Dept, of Finance, they found an actual decrease in the number of complaints.
Upon further review of claims, the OIR (Office of Insurance Regulation) showed for the period from 2015 to 2017 Southeast Florida had the highest frequency of water losses, but the highest combined change in frequency and severity occurred in Central West Florida where there was a 35% increase in claim severity.
When water loss claims are coupled with an AOB, the severity of a claim is generally at least 85% more; and since 2015, OIR found the use of AOB’s has increased from 12.8% to 17% of water claims.
Again the OIR concluded in its report that the increase in both frequency and severity of water losses, the rising use of AOB’s, and the acceleration of those trends over the last several years is “resulting in tangible consumer harm.”
It hasn’t had the attention like the water extraction assignment of benefits, but close on its heels is the dilemma of hail claims.
With most insurance policies having the provision that if your roof is damaged it is to be replaced with like kind and quality, “roving roofers” are approaching insureds who may have some aesthetic damage to their roofs with the incentive they can have a brand new roof installed by just paying their deductible. It would be fair to say, if insurance money was not available, no one would suggest that replacing an entire roof which is performing perfectly is a wise choice. But when an insurance company may be responsible, roofing contractors and homeowners forget about what is right and wrong.
Here’s why: Under the existing provision of Florida’s AOB provision, insureds and roofers have nothing to lose. In his statement before the Florida State Legislature, Mr. Altmaier pointed out the loophole contractors are taking advantage of, along with insureds, to submit a claim no matter how frivolous it might be. If the insurance company balks at paying the claim, the contractor simply hires an attorney to litigate the claim. If the roofer wins the lawsuit, the court will order the insurer to pay the roofer’s attorney’s fee. If the roofer loses, he usually will not have to pay any attorney fees because that becomes a requirement of the insurance company.
In addition, if the roofer obtains a judgment against the insurer for $1 more than the insurer offered to pay, the roofer’s attorney will get hundreds of thousands of dollars in attorney fees. The insurance company simply has the deck stacked against it.
It is sad that a provision for the prevailing party’s attorney fees to be paid was placed in the regulations to make sure the innocent don’t have to pay an attorney to sue an insurance company has been commandeered by unscrupulous contractors and attorneys for their own profit.
Mr. Altmaier stressed to the Legislature, “Without a legislative remedy, this problem will lead to an increase in homeowners insurance premiums and lack of consumer choice as insurers stop writing or renewing policies in areas with high water losses.”
His admonition fell on deaf ears during the 2017 legislative session but perhaps can gain traction during this year’s session which begins soon.