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Too early to tell how AOB reform will affect reinsurance pricing: Universal CEO


With a bill designed to reform assignment of benefits (AOB) having passed the Florida Senate this week, already discussions are turning to how the market impact will be quantified and whether it will reduce reinsurance pricing.

florida-beach-imageSB 122 (once HB 7065) passed the Florida Senate vote by 25 to 14 this week and now heads to Governor Ron DeSantis for his signature to become law.

It promises to reform the assignment of benefits (AOB) system in the state, which could have significant ramifications for pricing of insurance, as lower fraud and legal costs may significantly reduce claims inflation.

But, according to Sean Downes, CEO of Florida headquartered primary insurer Universal Insurance Holdings, it’s still too early to understand how that may play into reinsurance capacity pricing for the state.

At a time when the market is hoping for steep reinsurance rate rises in Florida, this legislation may eventually counter some of those, ultimately benefitting the insurance consumer through lower policy costs, but also insurers in the state through lower expenses and overheads as well.

That should eventually play into reinsurance markets as well, as the amount of claims they end up paying due to AOB fraud and litigation could reduce significantly once the AOB reform becomes law.

Given the impact of hurricane Irma related loss creep is driving rates at this renewal, with the AOB reform law set to come into force after the renewal on July 1st, it’s unlikely to factor into any reinsurance renewal decisions until next year at earliest, Downes suggested during his firms earnings call yesterday.

For reinsurers, the AOB reform bill will, “Lessen their exposure to some of the things that occurred specifically during Hurricane Irma,” Downes explained.

But, “It is obviously very difficult to quantify.”

Downes went on to explain that the market consensus in reinsurance circles is that the reform of this age-old and litigation heavy practice will certainly help the situation for reinsurers.

However, “It remains to be seen exactly how it will be quantified and work its way into reinsurance pricing,” he continued.

Given the passage of this bill into law and the potential for it to stem at least some of the hurricane Irma-like loss creep situation in Florida in future, there could be a natural benefit for insurers in negotiating their reinsurance renewals for 2020.

Universal itself does tend to lock in reinsurance for multi-year periods and this is one area of the market negotiations in 2019 that could be affected by the passage of the AOB reform bill.

Will any insurers want to lock in multi-year reinsurance coverage based on the current renewal rate hike expectations, when the following year’s renewal could see some moderating of reinsurance prices due to an improved AOB related outlook?

It’s just another factor to consider for both buyers and sellers of protection at this renewal and beyond and it also means the primary insurance rate increases being achieved may not be as long-lived as some insurers, including Universal, probably hope for.


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