Assignment of benefits (AOB) reform passes Florida Senate

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Meaningful reform could be on the way for the Florida insurance market, as a bill designed to reform the age-old practice of assignment of benefits (AOB) passed the Senate vote yesterday.

florida-map-flagHaving passed the Senate vote by 25 to 14, SB 122 (once HB 7065) now heads to the Governor Ron DeSantis for his signature.

Indicating his intention to swiftly sign the bill into law, DeSantis explained, “The exponential growth in AOB abuse has contributed to mounting insurance costs for Floridians for far too long. In recent years, there have been calls for reform and today, the Legislature took action. I thank them for their efforts in getting this done and I look forward to signing this meaningful legislation into law.”

As well as mounting insurance costs for Floridians, assignment of benefits (AOB) has also had an impact on reinsurance carriers, including collateralized and insurance-linked securities (ILS) funds.

Assignment of benefits (AOB) involves an agreement that transfers the rights and benefits to an insurance claim to a third-party, giving the third-party the right to file a claim, take decisions related to the repair and collect insurance payments without a policyholder’s involvement.

As a result, the AOB system in Florida has been open to abuse, resulting in inflated claims and fraudulent claims, which has added to loss costs for insurers, ultimately driving higher losses through to reinsurance and ILS partners.

Often accounted for under loss adjustment expenses (AOB) has risen dramatically in recent years. Back in 2008 there were only around 90 property AOB lawsuits filed in Florida, but by 2018 the number of lawsuits had increased by more than 19,000 percent.

Hence this timely bill could see an intervention finally being made and the practice reduced, if not stamped out.

It’s already been identified that AOB has been a partial cause of the loss creep experienced from recent Florida hurricanes, which have seen escalating industry losses from storms, creating higher reinsurance and retrocession claims that have impacted ILS players active in the state.

AOB lawsuits rose from 79,000 in 2013 to as high as 135,000 in 2018 by November 9th, according to Insurance Information Institute (III) data.

This accelerating growth of assignment of benefits in connection with property insurance claims has a knock on effect on reinsurance, retrocession and ILS fund players, as evidenced by the loss creep associated with hurricane Irma.

The now Senate passed bill will give policyholders the right to cancel an assignment of benefits agreement and require notice to be provided to the policyholder if a vendor enters into litigation on their claim.

It closes vendors’ access to policyholders’ unique one-way attorney fee rights, putting the vendors in a more appropriate business-to-business position where the loser pays the prevailing party’s attorney fees.

That alone could put off a significant number of AOB lawsuits, as it is not the case today, meaning vendors think twice before they bring a fraudulent lawsuit against an insurance company.

William Stander, executive director of the Florida Property & Casualty Association, commented on the news of the bills passing, “We have seen what can happen when there are no checks and balances on water mitigation and restoration vendors who pressure policyholders to sign over their valuable insurance policy rights during home emergencies. This lack of oversight has also given plaintiff attorneys the ability to file thousands of lawsuits without the possibility of paying the other side’s legal fees when they lose.

“Finally, we take a step forward in the fight against AOB fraud and abuse. This a true win for Florida homeowners and our state.”

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