COLUMBUS, Ohio, June 22, 2018 /PRNewswire/ -- Insurance industry leaders say better collection of data and use of analytics, coupled with a new method of looking at insurance company liabilities and surplus, are keys to providing "the true picture" of the rising costs of Assignment of Benefits (AOB) abuse in Florida – and to needed legislative reforms. It was part of a discussion this week with 200 participants in an interactive webinar "Industry Beware: Inside the AOB Epidemic" of which a recording will be available Tuesday, June 26th, at www.demotech.com.
"What if the legislature was giving a small set of trial lawyers $1 billion a year?" asked panelist Wesley Todd, CEO of CaseGlide, a claims litigation management and analytics software firm. And what if you and every one of the six million property homeowners in Florida had to write a $400 check each year to contractors and their lawyers? That's a different way of looking at this issue. But that's what's happened."
An AOB agreement is a legal contract that allows repair vendors to receive payments directly from insurance companies for work they perform at a policyholder's home, without the homeowner having to pay money upfront. While it sounds good, unfortunately in the past 6 years in Florida, unscrupulous vendors and their lawyers have taken advantage of AOB to take control of a homeowner's policy, then inflate the scope and cost of claims and sue the insurance company if it refuses to pay the inflated bills.
Citizens Property Insurance Corporation, the state's insurer of last resort with 422,000 customers, announced this week that it currently has 13,500 pending lawsuits, with an average of 1,250 new ones being field each month. 27% are AOB-related.
Better data tools and analytics are part of the solution to Florida's AOB problem, offered on the webinar. Todd announced the premier of the CaseGlide Index, a real-time index containing complete industry litigation data that previously hasn't existed in one database. It can also serve as a central foundation for rating oversight by regulators, rating agencies, and the reinsurance marketplace. "We're trying to cancel that $400 check each year," Todd told participants.
Joe Petrelli, another panelist and President of Demotech, an actuarial analysis and insurance ratings firm, talked about the impact that judicial decisions have on the industry. It's prompted Demotech to look more closely at the insurance industry's reported liabilities and policyholder surplus.
"A judicial decision reversing longstanding claims practices can increase the cost of losses and accompanying expenses. It's important to adjust the reported numbers as required to see the true picture," Petrelli told the webinar audience. Demotech changed its rating system last year to reflect, in part, Florida case law regarding AOB and the rising costs associated with AOB abuse, including insurance companies paying inflated claims and litigation expenses.
Better data and analytics will be key to solving another related problem discussed in the webinar: convincing the Florida legislature to enact necessary AOB reform. The legislature has failed to pass any reform bills for the sixth year in a row.
"We need to do a better job of educating the legislature," said Paul Handerhan, another panelist and Vice President of Public Policy for the Florida Association of Insurance Reform, the state's leading consumer organization. "This is not an industry issue – this is a consumer issue." He briefed participants on recent legislative efforts and court cases, many of which restrict insurance companies from regulating the use of AOBs.
"It's hard for our elected officials to believe that our insurance companies are trying to do the right thing," added panelist Lisa Miller, a former deputy insurance commissioner and CEO of Lisa Miller & Associates, a governmental affairs firm. "But those companies are doing right every day by their policyholders. Legislators have a hard time believing this is a problem."
Miller pointed to the latest face of AOB abuse, Orlando contractor Timothy Cox, charged this month with racketeering and theft for stealing nearly $140,000 from 19 homeowners and their insurance companies for home repairs never performed. The judiciary has taken lawyers to task, too. She urged participants to "talk to their local legislators" and at the same time, for those working in insurance claims, to review how they communicate with their own policyholders for potential improvements.
Recent legislative reform efforts focused on Florida's one-way attorney fees statute. It allows policyholders to recover legal costs if the insurer has been shown in court to have underpaid the claim in any amount. A bill, crafted by the Office of Insurance Regulation (OIR), clarified only the named policyholder would be entitled to file suit. That bill and others that provided additional protections for consumers and greater transparency, all failed this past session.
An industry database with aggregate data can help better analyze the problem and help make a more convincing case to lawmakers to reform AOB abuse. But there was frustration voiced as well at the lack of heed lawmakers – many of them lawyers - have given to existing data provided by Florida insurance regulators, which shows frequency, severity, and number of AOB claims all dramatically up.