Even before hurricanes hit Florida over the last two years, residents were seeing their homeowner’s insurance rates increase sharply for more than a decade year after year. The culprit for these increases surrounds scams by crooked contractors assisted by a cabal of trial attorneys.
Assignment of benefits (AOB) provisions allow insurance policyholders to transfer the right to collect benefits to a third party, usually a home repair contractor, who then bills the insurer directly for services.
While AOB provisions can be convenient for homeowners by allowing contractors to deal directly from the insurance company, shady contractors and their attorneys have abused AOB to submit inflated bills and threaten a lawsuit if the insurer doesn’t pay immediately.
Due to an outdated Florida law that gives contractors the upper hand in legal disputes — allowing trial attorneys to collect legal fees for successful judgments but denying insurers the same advantage — insurers are often pressured into paying inflated bills to avoid trial.
According to the Consumer Protection Coalition, AOB lawsuits in Florida are up 90,000 percent since 2000. That’s right — 90,000 percent.
Insurers that are pressured into making large payouts to avoid AOB-related lawsuits must raise their rates to stay solvent, which translates into dramatically higher property insurance premiums for consumers.
A new study by the Insurance Information Institute finds that Florida’s policyholders have paid $2.5 billion over the last dozen years in legal costs passed down by insurers facing a deluge of AOB litigation. And that doesn’t include the billions in excess claim settlements that insurers pay to plaintiffs abusing the system.
Just a few years ago, before the recent surge in AOB-related lawsuits, the state-run Citizens Property Insurance Corp. reduced premiums for 72 percent of homeowners’ policies while increasing them for just 28 percent of homeowners. By 2017, the trend had reversed; only 36 percent of policyholders saw their premiums shrink, while 64 percent saw them increase — all thanks to surging costs from AOB claims.
Earlier this month, Citizens announced plans to raise premiums by an average of 8.2 percent statewide in 2019, and 97 percent of homeowners will see their rates increase. The premium hike is mainly driven by non-weather-related water damage claims related to AOB.
In recent years, if it weren’t for AOB lawsuits which sap more than 50 percent of premium revenues, Citizens’ policyholders would have enjoyed a rate decrease instead.
Though the historical data is jarring, projections for the future are even bleaker.
Estimates using data from the Florida Office of Insurance Regulation show that, without reform, average homeowners’ insurance premiums for a standard HO-3 policy on a new $150,000 home will increase 29.5 percent in five years — from $1,232 in 2017 to $1,595 in 2022.
This statewide average masks much larger rate hikes in some Florida counties. Rates in Broward and Miami-Dade counties, among the hardest hit by the AOB crisis, are expected to rise more than 60 percent by 2022. For Miami-Dade residents with a home worth $300,000, premiums are projected to nearly double to $8,000 a year over the same time span.
Last December, the Florida Office of Insurance Regulation approved average rate increases for Citizens’ policyholders of 6.6 percent, with some areas seeing close to 10 percent hikes. This year, it’s even worse. Citizens is considering a 7.9 percent average increase statewide for 2019, with 60 of 67 counties getting higher premiums.
This is unsustainable, especially given the stagnant incomes of Florida’s families. With inflation-adjusted median household income in Florida still below its 2006 level, surging home insurance costs are quickly becoming unaffordable.
With the elections behind us, legislative action is long overdue. Unless the AOB crisis is brought under control, Floridians can only expect their home insurance rates to continue their upward spiral — with or without hurricanes.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit educational and research organization.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller