For many years, the Florida property insurance market has been waiting for relief to its number one problem – assignment of benefits (AOB). It’s a problem that has affected both insurance companies and policyholders alike. Governor Ron DeSantis and Florida Insurance Commissioner David Altmaier have asked the Florida Legislature to enact reform, and they have finally delivered by passing CS/CS/HB 7065. Pinnacle has been following this issue for many years and it has been a main topic in multiple presentations, including our State of the Florida Homeowners Market APEX webinars.

Before going into the details of this new bill, let’s define AOB. AOB is not a type of claim, but rather a mechanism with which to report and address claims. AOB allows the insured to permit third parties, such as contractors, to request payment from their insurance companies on their behalf. The goal is to streamline the claims process for homeowners and create a better overall customer experience.

However, what started out as a good idea has warped into something that has been harmful to the industry. Some contractors with an AOB in hand have made claims for much higher values than expected. Some attorneys associated with AOB claims have increased costs because of more claims going to litigation. Studies by the Florida Office of Insurance Regulation (FLOIR) and Citizens Property Insurance Corporation (Citizens), Florida’s property insurer of last resort, have shown a large disparity in claims based on whether or not an AOB is involved. This, along with tremendous growth in claims using AOB and Florida’s one-way attorneys' fee statute, have led to higher losses and increased insurance rates.

Why is this an issue in Florida as opposed to other states? They key is in the policy language. In Georgia for example, assignment of the policy or claim is not valid unless the insurance company gives its written consent. In Florida, most companies only specified assignment conditions related to the policy and not the claim. Multiple companies have tried to implement different policy language that has been disapproved by the FLOIR. Citizens received approval for some updates in language that helped combat AOB claims. Other insurers followed their lead, but it has not been enough to curb the problem entirely.

The results have been detrimental to the market. There were approximately 90 Florida AOB lawsuits filed in 2008. That number has increased more than 19,000% by 2018. Insurers have had to respond with double-digit rate increases that still aren’t enough to offset the increase in losses, particularly water damage and roofing claims.

So what will this new bill accomplish? In their recent webinar, Colodny Fass has summarized the bill will:

• Place substantial new requirements on assignment agreements under residential and commercial property insurance policies
• Require assignees of post-loss benefits to serve insurers with detailed notices at least 10 business days prior to filing lawsuits
• Require insurers to respond within 10 business days after receiving such pre-suit notices from assignees
• Replace one-way attorneys’ fees for assignees with a prevailing party formula
• Require insurers to begin reporting AOB claims data as of January 30, 2022
• Allow insurers to offer optional policy forms that eliminate or restrict the use of AOBs
• Require Citizens to include projected rate savings in its 2019 DP-3 and HO-3 policy rate filings

Citizens’ actuaries have already indicated that the reforms would reduce the statewide average rate need from 25.2% to 10.1% for homeowners policies. In South Florida, the rate need would decrease from 30.4% to 12.8%.

Pinnacle will continue to monitor the market’s reaction to the reform and will provide insight as to the potential impacts on insurance companies’ reserves and rates.