Editorial: Florida Water Scam is Soaking Consumers, Must be Plugged
Published in the Palm Beach Post
August 30, 2016
State-backed Citizens Property Insurance Corp. is looking for a 9 percent increase from Palm Beach County homeowners – and an average 6.8 percent statewide – even though there hasn’t been a hurricane in more than 10 years.
The reason has nothing to do with the ravages of nature. Look instead to the greed of some lawyers and unscrupulous building contractors.
As both the insurance industry and consumers’ advocates tell it, the South Florida region has been inundated with inflated claims and frivolous lawsuits involving simple water damage – the kind you get when your washing machine overflows — and the abuse of a legal right called “assignment of benefits,” or AOB.
AOB lawsuits work like this: You have a leaky pipe and you call a water mitigation company for emergency dry-out services. The company sends a technician and, while drying out the house, presents you with documents to sign, including an AOB, by which you forfeit your insurance rights and benefits. This allows the contractor to bill the insurance company directly, and get the proceeds directly. You see it as a convenience. The contractor and lawyer see it as a gravy train.
The lawsuits arise when the insurer denies a claim because some of the losses aren’t covered by the policy. The water mitigation company now has an unpaid bill, so it sues the insurer. A lawyer is happy to file suit because it can charge big, “one-way” fees: if the claimant wins, the insurance company pays. But if the insurer wins, it can’t collect its legal fees from policyholders. In other words, claimants have nothing to lose by filing suit.
Those legal fees often add thousands of dollars to claims, which are themselves based on inflated invoices.
The insurers usually decide to settle the cases because it’s cheaper than fighting the lawsuits.
The cases are running rampant, particularly in South Florida. “In Miami-Dade County, Citizens Insurance says that one in six homeowners had water damage last year – one in six! And we didn’t have a hurricane,” Mark Wilson, president of the Florida Chamber of Commerce, told the Palm Beach Post Editorial Board.
AOB lawsuits involving homeowner property claims skyrocketed 2,700 percent from 2005 to 2014, says the Personal Insurance Federation of Florida. This March alone, Citizens was sued 1,000 times. And the pace isn’t letting up.
Michael Carlson, executive director of the Personal Insurance Federation, saidthis is happening in no other state that his member companies operate in.
Inevitably, the cost gets passed on to policyholders. By law, Citizens can raise rates no higher than 10 percent a year. But in Palm Beach, Broward and Miami-Dade counties, Citizens says “actuarially sound” rates ought to rise up to 189 percent. So the requests for rate increases will keep coming.
And it’s not just Citizens. “The overall Florida market will also suffer, especially if the state is hit by a serious catastrophe,” writes Insurance Journal. Private insurers, seeing a significant rise in AOB claims, “say hikes of as much as $1 billion will be needed.”
The Florida Legislature had a chance to fight this problem by putting in some safeguards. But three bills to reform the abuses died in committees in the last legislative session. The same thing happened the three previous years, with the insurers out-lobbied by water remediation companies, contractors and lawyers.
So yes, as regulators mull the Citizens request — a public hearing period ends Thursday — we avidly hope they keep the increases as slight as possible.
But in the long run, consumers will be far better served when lawmakers finally get serious about cracking down on a budding scam that is quickly showing the potential to raise prices for everybody.
Citizens’ Rate Increase Request Further Proof of Need for Assignment of Benefits Reform
TALLAHASSEE, Fla. (Aug. 18, 2016) – Citizens Property Insurance Corp.’s proposed statewide rate increases demonstrate beyond a doubt that Assignment of Benefits abuse is hurting homeowners and must be addressed during the 2017 legislative session, the Consumer Protection Coalition said today.
During a rate hearing before the Florida Office of Insurance Regulation, Citizens said its recommended 6.8 percent rate increase for personal lines policies was necessary to offset an explosion in non-weather-related water loss claims. In many of the claims, a homeowner signed an AOB enabling an unscrupulous home repair vendor to take over the policy, inflate the cost of the claim and file a lawsuit against the insurance company if it disputed the bill.
“It’s unfortunate that Citizens is here today requesting a rate increase because of a legalized scam that allows the bad behavior of a few to punish everyone,’’ said MARK WILSON, president and CEO of the Florida Chamber of Commerce, which spearheads the coalition. “The coalition has been warning that AOB abuse would directly hit consumers’ wallets, and, regrettably, our fears are coming to fruition.’’
The broad-based coalition of business leaders, consumer advocates, real estate agents, insurance groups and others formed in January to raise awareness about the dangers of AOB abuse and need for reform. The coalition believes that abusive AOB practices and scams are harmful to consumers and jeopardize Florida’s business-friendly environment. The rapidly growing AOB problem also impacts the availability and affordability of insurance, hindering efforts by Citizens, the state-run insurer, to reduce its number of policies and shift homeowners to the private market.
“Citizens is taking the right steps to protect their policyholders should a large hurricane make landfall in the coming months,” said PCI Regional Manager LOGAN McFADDIN, a coalition member. “The last thing Floridians need is another unnecessary cost-driver increasing their insurance expenses as a result of abuse in our current system. We are hopeful this request from Citizens will prompt lawmakers to take a harder look at the problem and stop this type of abuse before it gets worse.’’
During the last legislative session, the coalition pushed for bills that would have added protections to keep homeowners in control of their policies when seeking emergency repairs for a broken kitchen pipe, roof leak or other kind of damage. The group also gathered testimony from actual customers who have been taken advantage of by vendors using AOB to pad their profits.
“This isn’t just a Citizens issue,’’ said MICHAEL CARLSON, president of the Personal Insurance Federation of Florida, and a member of the coalition. “All insurers are feeling the impact, resulting in higher costs for everyone. It’s time to put the bad guys out of business and put consumers back in control of their policies.’’
The coalition has been a vocal supporter of Citizens’ efforts to stop AOB abuse, including its campaign encouraging policyholders to call Citizens first after sustaining damage. Amid rising rates and mounting evidence of AOB abuse, the coalition plans to aggressively seek legislative reform again in 2017.
Smart Property Insurance Reforms Equal Consumer Savings
The Florida Chamber’s Bottom Line Featuring Michael Carlson
“We are in the best positon as a marketplace that we have been in for about 10 years now,” said Michael Carlson, Executive Director of Personal Insurance Federation of Florida (PIFF). “Our companies are more solvent, they are better able to make claims, and more importantly our backstop- the Hurricane Catastrophe Fund, our Citizens Property Insurance Corporation, which you know is a government supported entity- are both in the best fiscal shape they’ve been in.”
This is due in part to the smart reforms that have been enacted throughout the past several years such as creating more sustainable Citizen’s Property Insurance rates- allowing private companies to competitively take policies, creating a Citizens Clearinghouse program to help move policies into the private market, and reducing fraud in sinkhole claims.
But while our insurance markets are moving in the right direction, special interests groups continue to fight to make Florida’s insurance markets more expensive for families and businesses alike. For workers’ comp, this is a dangerous problem that could cost businesses increased rates.
“Trial lawyers today are challenging the very smart reforms that have been enacted in Florida since 2003 and if they are successful, you will see cost increases in the workers’ comp systems that will affect Florida’s businesses and Florida’s consumers.”
For property insurance, it could equal direct increased costs to homeowners.
“There is a worrisome trend developing in Florida where the cost driver that’s particularly related to roofing and water claims in the homeowner prop insurance market,” shared Carlson. “There is a legal tool called an ‘Assignment of Benefits’ which we believe is being abused by a cottage industry of unscrupulous vendors and trial lawyers that is causing rates to increase. We need to do something about that.”
One solution, Carlson says, is attending the Florida Chamber’s Insurance Summit January 26-28 in Orlando.
“It’s an important gathering. In fact, I would say that the importance cannot be understated,” said Carlson. “The prominent thought leaders, prominent stake holder groups, company executives and representatives, legislators, elected officials, academics all gather under the auspices of the [Florida] Chamber at this event to talk about the problems that we face in property insurance and other insurance markets and more importantly talk about solutions, smart solutions, to address these problems.”
Register today for the Florida Chamber Insurance Summit January 26-28 in Orlando.