“Well, I’ll be damned!”

These were the first words that came out of my mouth when I read an article reporting on a speech that Chief Financial Officer Jeff Atwater gave at a recent insurance conference attended by Florida property insurance executives. Then another “I’ll be damned” came out when I read an internet posting of efforts being made by the Florida’s new Insurance Commissioner to crack down on Assignment of Benefits a.k.a. AOB abuse and new legislation being prepared for this year’s legislative session which convenes in March.
But first some background on what prompted my shock and awe.  

As anyone associated with the Florida property insurance industry knows, a great hue and cry can be heard on most days about Florida’s AOB related property insurance crises. The allegations are that some folks generally referred to as “shady lawyers,” loss consultants (whatever they are, maybe people acting as public adjusters without a license), contractors of various sorts, which I hear include plumbers, are all conspiring together to enrich themselves on water losses that occur to real and personal insured property in Florida. 

According to some folks who have the charts, power points, and empirical data, the conduct of the bad actors in these groups has gotten so bad that the fraud and scam word are being used interchangeably to describe the need for a crack down to prevent the never ending rate increase being imposed on our citizens of this fine state.
So what’s the problem? Well, here’s how they tell me it works. When a property owner or manager experiences a water loss, the first thing they do is call in a plumber to shut the water off and make emergency repairs. Then they tell me some plumbers are in cahoots with the bad actors listed above, who give cash for each lead they pass along, known in the trade as referral fee or kickback. As to how much money is involved, I am hearing anywhere from $500 to $1,500 for just making the call. From there, water mitigation firms, a.k.a. emergency service firms, come out and start sucking the water out. Often times these emergency service firms or their friends at some other construction company will start the repairs, and from stories circulating, often complete the full repairs before a claim is even reported to the insurance carrier who insures the property.  
So, why would a company do this without some guarantee of payment or an authorization from the insurance company that the loss is covered and the scope and price of the work has been agreed to by the contractor, the property owner, and the insurance company? And here folks, is the devil in the details, the devil or angle depending on one’s perspective is a clause called ASSIGNMENT OF BENEFITS (AOB). All the homeowner has to do is simply sign a paper before the first fan, dehumidifier, or mops cross the entrance threshold of the property and they have nothing further to be concerned about…so they are told. 

If an AOB is signed, the property owner has just assigned their policy benefits over to some folks they likely do not know, and for sure probably never met or had the opportunity to check references, etc.  Now some will say, what’s wrong with that? I want my property cleaned up and repaired and if I have to sign a form, to hell with my insurance company, let the rug suckers fight it out with the adjuster. If they cannot get paid they assured me they will get their lawyers to get their money from my insurance policy without any cost to me. What a deal! The problem is taken care of, no out-of-pocket expenses for the property owner and maybe the contractor will even throw in a complete remodel of the kitchen, bathroom, or other area of the house. All without some insurance company adjuster dictating the scope and price of the repairs or for that matter even raising the policy terms and conditions!  
Well, what sounds to good to be true may be just that, to good to be true. The problem being reported is that the courts are being clogged up with lawsuits over disputes between restoration companies and insurers who claim bills are excessive for the work that was needed and the cost that is being claimed. Make no mistakes about it, insurance companies are often their worst enemy, but the nature and frequency of lawsuits at least from what is being reported is completely off the charts with this assignment of benefits crises.
What’s really causing this, in my view is simply a lack of CAT losses over the past ten years. And when I talk about CAT losses, I am talking about hurricanes.  When hurricanes were ravaging the state, everyone was fat and happy. Big money was flowing like water from a fire hydrant. Lawyers, contractors, loss consultants, etc., and anyone else that can get a contract signed and speak some insurance were fat and happy until the music stopped. Now, simple water losses have turned into profit centers for any number of bad actors as the connection has been made between property insurance policies, contingency fees, lawsuits vis-à-vis  assignment of benefits, and what should be illegal referral fees. Add insurance companies that are often lacking field adequate experienced staffing and it’s the perfect storm. Unless something is not done about it, guess who pays?
How bad is it, depends on whom you ask.  But one insurance rating agency just issued a press release stating that they are going to reduce their financial rating standards on 10 to 15 Florida based homeowner insurance companies due to the carriers’ exposure to AOB losses. When this happens, this rating agency claims that the ability for prospective homeowners to buy homes could be in jeopardy because government backed loans will likely dry up.
So now is a good time to connect the dots on my shock and awe resulting in “Well I’ll be damned” statement.  You see, to me, if the level of questionable behavior being reported is valid, why aren’t the folks in power at the state level investigating these matters  or taking some action to do something about it?
The answer to my question came to me when I watched the “Troubled Waters” seminar recently held in Boca Raton, Florida. The DFS’s Florida Consumer Advocate chaired this event and its function was to hear from various speakers about the AOB problem.
So it was no surprise that a Citizens Insurance Company official who spoke was very vocal about the abuse he was seeing. But the big surprise came when a gentleman from DFS Office of Insurance Regulation and who is charged with conducting insurance fraud investigations said his office only had a very small caseload relating to the issues folks were talking about in the seminar.
This omission to me was astounding. How could the alleged abuse be so wide spread that the folks charged with fraud investigations were not seeing what the insurance chiefs and others were reporting? Well this is when both shoes dropped! This gentleman claimed he was not getting referrals from insurance companies that had to come to his office from the carriers’ SIU units. SIU in the insurance world means Special Investigative Units. As background, SIU units were a creature of the legislature some years back to require insurance carriers to investigate fraud and at the same time give them immunity so they could share information with law enforcement and between themselves.  So here we have it. On one side, insurance companies are whining about the abuse and fraud associated with AOB, but on the other hand, they are doing nothing about it in terms of pursuing fraud in either a civil or criminal context.
Why is this? Well, it seems to arrest someone for criminal fraud you need to have your investigation as they say in the military “tight.” In a civil matter maybe the preponderance of evidence will suffice. But the real facts seem to be that the insurance companies are doing nothing, just paying settlements to get out of lawsuits and passing the costs along to the consumer. You would think that even a small effort to crack down on some of the bad activity would send a strong message and curtail others from similar activity.
To further verify the failure to pursue these suspected claims; At a recent meeting in south Florida, Jeff Atwater, Florida’s Chief Financial Officer spoke to an assembled group of insurance company officials and told them they need to get their files in order if they are claiming abuse and fraud as being alleged. In other words, SIU investigators need to do a much better job, otherwise the State fraud folks cannot make a case. Remember, the State’s fraud guy at the Trouble Waters seminar? As I recall, he said the State had about 200 cases of which few would ever go to trial. Mr. Atwater said he was aware of 276 cases that had been referred to the insurance fraud division.
Well I will be damned. Hardly a crisis given the number of cases. Or is it? You be the judge. 

Total: 1 Comments
Dan Cox
  I have heard of these. We have them in SC too, but usually only Roofers use them. I have never actually laid eyes on one. Do you have or know where any examples are? Thanks.
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