Insurers Respond to Rising Claims Abuse

Whenever severe weather strikes and there is property damage, insurers are among the first responders to help throughout the recovery process. However, in too many cases, some shady contractors, public adjusters and lawyers seeking to prey on the misfortune of others and profit from the insurance payouts are not far behind.

This is a growing problem across the country, and homeowners need to be aware of those looking to take advantage of them following a weather event. Even though state and local officials have little tolerance for scams and attempt to crack down on the criminals, it can be difficult to stop those who are determined to abuse and misuse the insurance and legal system with excessive claims and litigation.

States like Colorado, Texas and Florida – with extreme exposure to catastrophic weather events – are well aware of the need to take steps to mitigate losses, but making progress is challenging because these states are also plagued by contractors and lawyers who abuse the legal system. The abuses drive up not only the rate of disputed claims and court action, but costs.

One of the abuses growing at an alarming rate involves the assignment of benefits (AOB). Lawyers and local contractors often work together to encourage homeowners to sign away their insurance rights and sign over control of their insurance policy. Many of the contractors involved in this abuse inflate claims costs and when an insurance company doesn’t immediately pay the claim, lawyers are quick to file a lawsuit. This leaves homeowners suffering through unnecessary litigation when they simply wanted to get the repairs made and move on with their lives.

This major influx of AOB claims and lawsuits is hurting homeowners and potentially driving up insurance costs for everyone. Assignment of benefits reforms are needed to protect policyholders from dishonest companies and individuals looking to take advantage of people in a desperate situation.

Florida is ground zero for this type of abuse. The Wall Street Journal editorial board even recently weighed in on AOB abuse in Florida, calling it a “man-made fiscal hurricane.” In a detailed analysis of this get-rich-quick scheme where lawyers file inflated claims to try to secure settlement paydays, Citizens Property Insurance concluded that AOB abuse could soon impact property insurance rates for homeowners across the state by as much as 10 percent per year.

It’s not just homeowners who are the victims. In both Florida and Arizona, auto glass repair schemes are becoming another example of AOB abuse. Some auto glass repair shops try to convince unsuspecting consumers to sign over their insurance benefits. These shops aren’t affiliated with the insurance companies. They may inflate the glass claim and then turn around and sue the insurance company, often without the policyholder’s knowledge. According to the Florida Department of Financial Services, in 2006, approximately 400 auto glass AOB lawsuits were filed against auto insurers. In 2016, nearly 20,000 lawsuits were filed.

Consumers must be aware of the type of fraudsters out there, which is why some companies have developed preferred contractor managed repair networks to provide their customers with the option to use contractors that have been pre-vetted for quality work and customer service. These types of programs help curb the abuse, but unfortunately, they cannot eliminate it from occurring.

It’s crucial we continue to educate homeowners about the importance of talking with their insurance company or agent before signing any documents related to damage repairs.

We also need to help policymakers focus on the importance of maintaining a healthy business climate and competitive insurance market.