Heat Is on Florida Lawmakers to Fix Assignment of Benefits Crisis

Florida’s insurance industry will apply significant pressure on lawmakers to pass assignments of benefit (AOB) reform in the upcoming legislative session as consumers face rate increases and a looming coverage availability crisis due to serious and costly abuse of the policyholder benefit.

While the industry seems to finally have reached a consensus on what is fueling the widespread AOB abuse and how to fix it, the question of whether the Florida Legislature will agree to act on the industry’s recommendations remains to be seen.

The Florida Office of Insurance Regulation (OIR) and Citizens Property Insurance Corp., as well as other stakeholders, are working together with Florida lawmakers to introduce a bill for the 2017 legislative session, which begins on March 7. The goal is to keep the assignment of benefits consumer protection in place, but take away the incentive that is driving the abuse by assignees, who have included attorney groups, unregulated water mitigation, remediation, and roofing contractors.

The unanimous feeling is that Florida’s one-way attorney fee statute is the main driver of the problem, and that’s what the industry says needs to be addressed by legislation in the upcoming session. Under Florida’s current law, policyholders suing their insurer over a claim dispute can recover their attorney’s fees if the insurer is shown to have underpaid the claim, by any amount.

The industry says third party contractors and attorneys have been abusing the policyholder benefit, particularly for water losses, to inflate claims and fees.

“Is there an incentive in the market currently that entices people to abuse the system. We think that the answer is yes,” Florida Insurance Commissioner David Altmaier said in an interview with Insurance Journal. “The logical step, in our opinion, would be to take that incentive out of the marketplace.”

However, Altmaier emphasized that doesn’t mean eliminating the one-way attorney fee statute altogether.

“That is a very good statute for an insured – we think it should stay in place FOR insureds,” Altmaier said. “We think that it was not intended to apply to anybody other than insureds. So, we think that a good first step is to look at whether we can clarify the intent of that statute and make sure that it remains intact for insureds, but isn’t able to be abused by folks that are not the insured.”

A recent draft bill from OIR would do just that, stipulating that attorney fees would not be awarded under the current statute (627.428) “in favor of any person or entity seeking relief against the insurer pursuant to an assignment agreement.”

Other proposals being discussed include: establishing minimum standards for valid assignment agreements; limitations on assignee recovery from a policyholder; and requirements related to litigation that may include requiring the assignee to notify the policyholder and the insurer prior to initiating litigation.

Requiring regulation of water and emergency mitigation providers, such as requiring them to be licensed, and expanding the criminal offense of aiding in solicitation of legal services to include water and emergency mitigation providers have also been considered.

Altmaier said increasing frequency and severity of water claims underscores the importance of legislation getting passed this year.

“If you look at the trends of water claims over the last five years – it’s alarming,” said Altmaier. “Absent any kind of reforms to address those trends, we could be seeing rate increases of 10 percent a year just to keep up with those trends…That 10 percent is absent any other factor. If there is some other sort of market mechanism that would be a cost driver, then it could be worse.”

Altmaier said nearly 73 percent of insurance company rate filings requesting an increase were approved by OIR, largely because of AOB claims.

“I don’t take that lightly, approving rate increases,” he said. “We spend a lot of time scrutinizing each filing that comes in and making sure that the numbers are supportive of the ultimate approved rates. When 73 percent of them are for rate increases and we have the data showing that those trends are continuing to go upwards, that is a pretty telling story, in our opinion.”

And insurers aren’t just raising rates to combat the abuse – they are also pulling out of certain areas of the state, filing for policy wording changes, and accepting fewer take-out offers from Citizens, the state-run insurer of last resort. Citizens has reached its lowest policyholder count in more than 10 years, but there are concerns those efforts will be reversed if the AOB problem continues.

“This is what we have to fix,” Barry Gilway, CEO and executive director of Citizens, told attendees at the recent Florida Chamber of Commerce Insurance Summit, saying the increase in litigation is what is causing increased costs for insurers and policyholders.

“In 2011, 12 percent of our total claims went into litigation – last year, 45 percent of our claims went into litigation. We had 9,806 lawsuits last year and we’ve got 860 lawsuits per month coming in the front door,” Gilway told attendees. “It’s trying to put your finger in a dike.”

Last year for the fourth year in a row, legislators failed to address the abuse because of lobbying from the trial bar and contractors who are taking advantage of the current system. But consumer advocates and the insurance industry are hopeful this year that lawmakers have finally gotten the message that this is a problem harming consumers, not insurers.

Gilway said the issue with getting legislation passed in previous years was due in part to the industry being out-lobbied, but also the industry wasn’t working together to fix the abuse.

He says that is no longer the case.

“What I expect from the industry is exactly what is happening right now,” Gilway said. “It’s a problem for everybody so the industry is getting behind [fixing] it.”

Altmaier said if another year goes by without reform, Florida consumers will face serious insurance affordability issues.

“At the end of the day that is the bottom line – we want to make sure insurance products remain affordable for insurance consumers,” Altmaier said.

OIR’s support has been crucial to getting the industry on the same page. Altmaier said OIR and the industry have worked closely to make sure that everyone agrees on the fix from an insurance standpoint.

The goal now is to tell that story to the Florida Legislature.

“We’re working very hard to make sure that we tell a very good and very data driven story. We want to rely as little as possible on anecdotal evidence of bad actors and things of that nature and just present a very fact based, data-driven story of what we believe is taking place in the marketplace,” Altmaier said. “Couple that with a solution that is very surgical in nature…and makes sure that it keeps intact the ability for insureds to assign their benefits, for them to use third party contractors…That’s the end game for us.”

Still, even with OIR’s backing, it won’t be easy.

“It’s going to be a hard battle,” Gilway said. “Let’s face it, the trial bar is extremely powerful and there’s absolutely no question they are going to fight this hard. They are going to fight anything that in any way shape or form impacts their ability to take on vendors as clients and eliminates any possibility for them to get fees.”