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Don’t over-estimate pricing impact of AOB reform in Florida: A.M. Best


Rating agency A.M. Best warned of concerns that insurers may over-estimate the benefits of recently passed legislation to reform the assignment of benefits (AOB) system in Florida in their pricing.

florida-beach-imageWhile A.M. Best notes that it is “cautiously optimistic” on the impact the legislative reform can have on insurers over time, it cautions on taking too drastic an approach to rates in the shorter-term.

“Whether there are any loopholes in the law that can be exploited remains to be seen,” A.M. Best cautioned.

Adding that, “Just how much relief will be realized remains uncertain, and expectations of more moderate rate changes in the near term may be disproportionate.”

There’s also the current backlog of unsettled claims in Florida to consider.

Even though the AOB reform bill came into effect on July 1st, A.M. Best says that with many claims still in progress, these could take a considerable time to settle.

As a result, insurance “rates may continue to reflect the associated adverse impact until all open claims roll off,” the rating agency said.

On the other hand, insurers may find it harder to push through larger rate increases from now, with the AOB legislation in place.

“Given the market dynamic, insurers have come to expect approval of significant rate increases, but with the passage of these bills, such increases may no longer be as easily obtained, as regulators expect consumer relief,” A.M. Best said.

It’s also important to consider that the bill did not address non-AOB claims, the rating agency continued, meaning that “one-way attorney fee rule still applies to those suits that do not include an assignment and may still burden insurers.”

Hence it’s far from clear-cut how long it will take for the benefits to really be felt and for the Florida property insurance market to settle into its new legislative state.

A.M. Best notes that the long-term impact of the reform is expected to be positive though, saying, “Regardless, the bill goes a long way in addressing the immediate needs of the market and is expected to benefit the operating performance of Florida-specific property writers and the market as a whole.”

Assignment of benefits had a “pervasive, negative impact for many carriers” the rating agency believes, which on top of complex hurricane losses and adverse reserve issues, has made the Florida market appear a little less attractive to the reinsurance capital providers that have buoyed insurers business models in recent years.

It’s expected there will be benefits for consumers thanks to less upward pressure on insurance rates in years to come, which will naturally have an effect on reinsurance capital providers appetite and rate expectations as well.

It just may not flow through the market as quickly as some would hope for and the rating agency’s words should be heeded, as moving too soon or too far on rates may prove unwarranted if the benefits are not immediately as significant as hoped for.

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