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Citizens: AOB reform could reduce Florida homeowners rate need by 15%


The enactment of a bill designed to reform the assignment of benefits (AOB) system in the state of Florida has the potential to reduce homeowners insurance rate need by an average of 15% and in some cases in the south of the state as much as almost 18%.

florida-map-flagThe passage of HB 7065 through the House and now Senate in Florida caps five years of attempts to stem litigation and AOB abuse related costs.

In particularly, the explosion in nonweather related water loss claims in recent years has affected Florida Citizens, forcing it to propose a rate increase for 97 percent of its homeowners policyholders in 2019, the insurer said.

Hence the bill to reform assignment of benefits (AOB) is welcomed by Citizens, who believes this “meaningful legislation” will provide “relief to Florida property insurance policyholders” through the reduction of litigation and assignment of benefits abuse, ultimately promising to make insurance more affordable in the state without the runaway claims inflation seen of late.

Barry Gilway, Citizens President, CEO and Executive Director, commented that the vote in favour of and passage of the bill is “a critical step in our efforts to bring relief to our policyholders, who have had to pay the bill for runaway litigation and AOB abuse.”

In fact, Citizens’ actuaries have looked at just how big a difference the reforms in the bill could make and believe significant rate related benefits are likely.

They believe the bill will help to reduce the statewide average rate need from 25.2 percent to 10.1 percent for homeowners policyholders, while in South Florida, where AOB abuse has been likened to an epidemic, the average rate need would drop from 30.4 percent to 12.8 percent. They note the final figures will could be different, as policy information and data are updated.

That’s a significant change in the need for rate and should remove a lot of the pressure for rate increases in the state, at least on the primary side to begin with.

Of course, if primary rate need reduces, then the knock-on effect will be less upwards pressure on reinsurance rates in Florida as well.

As we explained last week, Sean Downes, CEO of Florida headquartered primary insurer Universal Insurance Holdings, said that he feels it is still too early to understand how the AOB reform may play into reinsurance capacity pricing for the state.

But Citizens actuarial work suggests that upwards rate pressure will be significantly reduced on the primary side, which will naturally filter through into reinsurance markets as well.

Reinsurance firms and alternative or ILS capital providers will be keen to see property catastrophe reinsurance rates in Florida hold up as much as possible, to enable them to at least feel like they are being paid back to a degree for taking the highly inflated losses from recent hurricanes and the loss creep that has been partly driven by AOB.

But, if the bill is as effective as Citizens’ actuaries seem to believe, then reinsurance rates could see upwards pressure easing sooner than many would have liked.


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