For those of us who are insiders in the Florida claim adjusting business, the AOB issue has been the hot topic with a whole host of folks calling for its demise. I had previously written about this insurance claim scheme and the response to my blog was amazing. Seems no one likes the assignment of benefit except for some of the folks in the restoration business and of course a hand full of lawyers who have discovered a new opportunity to collect attorney fees.

For those readers who are not familiar with AOB, it seems to have evolved from the slowdown in business for the disaster restoration folks due to a lack of a big natural disaster like a hurricane and maybe the effects of the recent great recession. In addition, increased competition for what dollars were available played a big part in this scheme. Firms needed money for their construction business to survive.  When banks stopped lending and new construction stalled it didn’t take some folks long to realize where the money was.  Insurance money was suddenly the pot of gold, coveted as a steady and predictable source of funds to keep the doors open and creditors at bay.

But as all the insiders know, insurance money for mopping up water, cleaning up following a fire or other covered peril is not easy money. Insurance companies fight hard to keep claim payments down and they are good at second-guessing on the scope and cost of emergency services. Interestingly, I had lunch with one of the principals of a large and successful restoration firm recently who told me how another principal in the firm hates the business mainly because he was tired of fighting insurance companies over the scope and cost of work they do for their clients. It seems they are being nickel and dimed over every job.

Thus some restoration firms avoid this problem with the help of some crafty lawyers who stumbled on the now infamous scheme called assignment of benefits. These contractors caught on fast to language drafted by lawyers and added it to their work authorization forms. So, when a call comes in the middle of the night about a water loss or fire, unsuspecting property owners are asked to sign forms to start the mitigation process. Who is going to read these forms under these types of circumstances and how many would really understand what they just signed and the consequences that will result?

So what happens if you sign an AOB form? Well, you just assigned your policy over to whoever pushed the form under your nose. And when I say whoever, as it stands now, that can be just about anybody! No license is required and as we have seen, there is no oversight from state officials to protect the consumer. As an example, I watched the Insurance and Banking committee meeting in Tallahassee when legislation was being debated on curbing AOB abuse. One chart that caught my attention showed virtually no AOB lawsuits during the horrific 04-05 storm season. How did we ever get thru it!

During the hearing, a number of restoration contractors showed up to give the committee their stories on why AOB was needed. As usual the stories had been well rehearsed for what the speakers thought would have maximum impact. Nothing new here it’s always about senior citizens, our winter snowbirds, or some tragedy of one sort or other told in an effort to pull on the heart strings of the legislative committee. The problem with most of these presentations was that almost to a person these contractors were telling their stories about representing insured policyholders.  They opined that if they were not allowed to use the assignment of benefits contract form, the claim would either not get settled, the policyholder would get screwed by their insurance company and the contractor would not get paid for all their hard work because the insurance company would reduce payment or screw them out of their money for representing the insured policyholder in their claim.

After a few presentations, the light bulb went on in my head! Hey, these people are confessing to acting as a public adjuster and being a contractor on the same loss. And they just admitted this on camera! Just for the record, Florida does allow a person to hold two or more state issued licenses, but the rules are that you cannot act as a public adjuster and a contractor on the same loss. Based on historical experience, I doubt if anything will come of these confessions, but it sure helps to highlight the disregard for rules and regulation many of the ethical businesses have to operate under, while others are seemingly immune.  

So in simple terms, what is the problem with the assignment of benefits scheme? First, claim costs are going up and that is costing all of us. In conjunction with the cost, there is nothing to stop unlicensed public adjuster/contractor to make whatever claim they want in terms of scope and price once the policyholder has signed the benefits of the policy over to them. If the carrier refuses to pay, the un- licensed public adjuster/contractor becomes the claimant in a lawsuit with no downside. If they get one dollar more than the offer from the insurance company, their attorney gets their legal fees paid.  Talk about a moral hazard, this AOB looks like a real free lunch. And remember, these unlicensed public adjuster/contractors have no oversight from the regulators at the Department of Financial Services or the Insurance Commissioner’s office. 

Regarding a solution, how about a work authorization form with a direction to pay language for the work (scope and price) that has been agreed to by the real policyholder, their insurance company adjuster and if engaged, by the insured’s public adjuster? This would of course require insurance companies to ramp up staff to actually inspect and help manage the loss. My guess is that will not happen. The costs related to abusive AOB along with the legal fees will simply be factored into the premiums.

At least for this year, I was correct that AOB would be kicked down the road. Maybe we will get to watch the show next year and witness another parade of characters arguing that property insurance claims should be able to be assigned to whomever. The stories these folks tell to justify their need to preserve AOB are, well let’s just leave it at this, amazing.  Let us know what you think!