Florida homeowners are in for some unwelcome news. Insurance rates appear poised to surge yet again. The state-run Citizens Property Insurance Corp. will consider an average statewide premium increase of 7.9 percent  at its December meeting, while coastal counties’ rates may jump by almost 10 percent.
Unfortunately, premium increases have become the norm throughout the Sunshine State. Floridians currently have the country’s highest homeowner’s insurance rates  and premiums will continue to rise unless the Legislature acts. Without their intervention, homeowners insurance rates could spike by 50 to 60 percent  over the next five years in places like Broward, Miami-Dade and Duval counties.
While these costs reflect the risks that Florida’s residents face, recent spikes have come in response to a unique confluence of factors related to assignments of benefits  (AOB), the process by which your home repair contractor can directly bill your insurer. It is common knowledge among policymakers and industry professionals that AOB abuse is a major culprit driving up insurance rates. Unfortunately, the Legislature has neglected to address these issues for six consecutive legislative sessions.
The AOB dilemma stems from a witches’ brew of bad public policy and unscrupulous contractors and attorneys. When a homeowner’s property incurs covered damages, the policyholder can use an AOB to transfer authority to the repairman to work with and directly charge the insurance company. In theory, this will save the property owner a lot of hassle. But homeowners should beware: once signed, this agreement cannot easily be revoked.
AOB becomes a problem because of Florida’s peculiar laws. Contractors looking to game the system can submit astronomical estimates to insurance companies, often without the homeowner’s knowledge. Insurers naturally balk when they receive overinflated estimates. This subsequently provides contractors standing to sue the insurer by claiming that they are acting in bad faith – a vaguely defined concept.
Seeing little downside, Florida trial attorneys are emboldened to pursue these cases. Because of Florida’s one-way attorney’s fee law, the insurance company is required to pay the plaintiffs’ legal fees if the contractor is awarded any amount above their original estimate. The insurer, however, is not entitled to recoup their legal fees in any scenario. Insurance companies are in a lose-lose situation. Either they immediately cover the inflated invoice or risk paying the overpriced bills and attorney’s fees. As insurers’ costs rise, these increases are passed onto insureds via rising homeowners insurance premiums.
Sometimes AOB fraud is discovered and arrests are made. A contractor was recently charged with allegedly scamming insurance companies of around $140,000  by exploiting AOB. While prosecuting fraudsters is helpful, it isn’t enough to squelch the many questionable AOB-related lawsuits. In fact, this year, Citizens will spend around $80 million  on AOB lawsuits alone, and AOB suits are up 90,000 percent  from the year 2000. In an attempt to counter rising AOB claims, Citizens has announced a new policy starting Aug. 1 in which the insurer will set a $10,000 ceiling  on certain benefits unless the homeowner elects to use a contractor vetted by the insurance company.
Florida desperately needs substantive legislative action to fix the loopholes allowing the problems in the first place. The Legislature could require contractors to operate with more transparency. Legislators could allow a grace period in which insureds can revoke AOB agreements with dishonest contractors. Lastly, the one-way attorney’s fee law needs to be revised to discourage baseless lawsuits. Citizens President and CEO Barry Gilway affirmed recently that, if the Legislature addressed these issues, homeowners rates could plummet by as much as 20 percent .
Floridians cannot wait any longer. With premiums surging, lawmakers have no excuse to justify their inaction.
- “7.9 percent”: https://www.insurancejournal.com/news/southeast/2018/06/21/492865.htm
- “highest homeowner’s insurance rates”: https://www.investopedia.com/articles/personal-finance/032515/highest-homeowners-insurance-states.asp
- “50 to 60 percent”: http://2o9ub0417chl2lg6m43em6psi2i.wpengine.netdna-cdn.com/wp-content/uploads/2018/01/129.pdf
- “assignments of benefits”: https://www.insurancejournal.com/blogs/right-street/2018/04/25/487384.htm
- “$140,000”: http://floridapolitics.com/archives/266606-charges-filed-in-alleged-insurance-fraud-scheme-involving-aob-agreements
- “$80 million”: https://www.watchdog.org/florida/citizens-ceo-aob-reform-could-slash-insurance-rates-by-percent/article_df420ab2-731e-11e8-bb93-6fe4e6edc9d1.html
- “90,000 percent”: http://2o9ub0417chl2lg6m43em6psi2i.wpengine.netdna-cdn.com/wp-content/uploads/2018/01/129.pdf
- “$10,000 ceiling”: https://www.watchdog.org/florida/citizens-ceo-aob-reform-could-slash-insurance-rates-by-percent/article_df420ab2-731e-11e8-bb93-6fe4e6edc9d1.html
- “plummet by as much as 20 percent”: https://www.watchdog.org/florida/citizens-ceo-aob-reform-could-slash-insurance-rates-by-percent/article_df420ab2-731e-11e8-bb93-6fe4e6edc9d1.html