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Florida assignment of benefits (AOB) reform signed into law


Florida’s Governor Ron DeSantis has now signed into law the bill that aims to reform the practice of assignment of benefits (AOB), so increasing the chances that the insurance and reinsurance market can get a firmer grip on the runaway claims inflation seen with recent hurricanes that hit the state.

florida-beach-imageThe measure, HB 7065, aims to stem the explosion of lawsuits and transferred insurance claims rights, providing insurers with greater ability to stem the unlawful inflation of claims that has been seen in recent years.

Assignment of benefits (AOB) sees an agreement transferring the rights and benefits to an insurance claim to a third-party. This can give the third-party the right to file a claim, take decisions related to the repair and also collect any insurance payments without the original policyholder’s involvement.

Which could all be fine, except for that the AOB system in Florida has been open to abuse, resulting in inflated and fraudulent claims, adding to the loss costs for insurers, ultimately driving higher losses through to reinsurance and ILS capacity providers from recent hurricanes and tropical storms.

Often accounted for under loss adjustment expenses, AOB has risen exponentially in recent years. As recently as 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.

Commenting on the passage of the reform, DeSantis said, “I thank the Florida Legislature for passing meaningful AOB reform, which has become a racket in recent years. This legislation will protect Florida consumers from predatory insurance practices.”

By stemming abuse, the bill is expected to help reduce rising insurance costs for consumers and as a result should also cascade through to the reinsurance market, as a picture of the lower loss adjustment and inflation costs emerges over the coming years.

Any impact on reinsurance pricing is not expected to be immediate, but Demotech recently said that it does expect to see the passage of these reforms reflected in reinsurance costs in time.

Barry Gilway, the President, CEO and Executive Director of Citizens Property Insurance Corp., commented on the news of the passage of this reform, “I want to thank Governor DeSantis for his quick action on this much-needed piece of legislation. This new law represents a major step forward in our efforts to stem rising premiums caused by unnecessary litigation and assignment of benefits abuse. It is going to make a difference.”

Insurance Commissioner of Florida David Altmaier also said, “We commend the Governor for his leadership in signing the recently passed AOB legislation and look forward to the relief it will bring to Florida’s insurance consumers.”

By closing vendors’ access to policyholders’ unique one-way attorney fee rights, putting vendors in a more appropriate business-to-business position where the loser pays the prevailing party’s attorney fees, the hope is that AOB lawsuits will be less appealing, meaning that the vendors think twice before they bring a fraudulent lawsuit against an insurance company.

That could result in significantly less claims inflation in Florida, benefitting the entire insurance and reinsurance community.


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