November 7, 2017
The Florida Chamber of Commerce brought together regulators, lawmakers, insurance industry executives and other stakeholders last week for the chamber’s annual insurance summit. Through several panel discussions on pressing and emerging issues facing the state’s insurance market, the summit touched on everything from recent cases expected to raise workers’ compensation insurance costs to Hurricane Irma’s impact on the insurance and reinsurance markets to an overview of insurance-related bills considered by the Legislature earlier this year.
But the issue that drew the most attention was abuse of the “assignment of benefits” system, which has become the leading cost-driver in Florida’s property and casualty insurance market.
An AOB allows a policyholder, after a loss, to assign his or her policy benefits to a third party – generally to vendors like water-remediation companies, repairmen and contractors. This transfer not only allows the vendor to charge the insurer directly, but should they sue the insurer, they are able to take advantage of what was originally intended to be a consumer-protection provision called the “one-way attorney fee” law, allowing the assignee to collect legal fees from the insurer.
This system has encouraged unscrupulous vendors to overcharge for their services and file frivolous litigation, which can increase the cost of even the smallest claims by many thousands of dollars. Ultimately, the increased volume and cost of these claims are recovered through higher insurance rates.
This is an issue the R Street Institute has called attention to for the past few years, including in our most recent insurance study published with the James Madison Institute. However, due to yet another year of inaction by the Legislature, the fleecing of Florida’s insurance market remains ongoing, with rates needlessly increasing at a time when Floridians would otherwise be experiencing rate decreases.
Some troubling AOB-related statistics shared at the conference include:
- A tripling of insurance litigation across every major company in Florida;
- An increase in the cost of litigated cases, which now average $40,000, versus nonlitigated cases, which average $8,600;
- A spike in the number of insurance companies requesting rate increases, despite a hurricane-free decade and low reinsurance rates. In 2014, only 37.6 percent of insurance companies requested rate increases; by 2016, 72.3 percent of companies requested increases; and in 2017, 90 percent of the companies that have submitted their rate requests have filed for increases.
Despite these troubling figures, trial lawyers and their allies in the Legislature continue to demand more data to justify reforms. I was asked to present my findings on this subject during the summit. My conclusion was that the data is not only abundant, but also that its sources are unbiased, diverse and sufficiently numerous to justify meaningful reforms to tackle the abuse. This conclusion is shared by the insurance industry, national rating agencies, Citizens Property Insurance Corp., consumer groups, realtors, reinsurers, the state’s insurance consumer advocate, a number of Florida newspaper editorial boards and even the Wall Street Journal. Indeed, Florida Insurance Commissioner David Altmaier remarked that AOB reform would be the Office of Insurance Regulation’s top legislative priority.
In short, the only participants in this debate who disagree with reforming the system are those who benefit from it financially. It is increasingly apparent that their calls for more and more data are merely a dilatory tactic to prolong their profiteering.
Another argument that opponents of reform have made is that consumers never enjoy lower insurance rates after the Legislature enacts insurance reform legislation. This view was repeated by Senate Banking an Insurance Chair Anitere Flores, R-Miami, during the Summit’s legislative panel. Given this widespread belief, some have called for statutory insurance rate rollbacks as a condition for meaningful AOB legislation.
However, the facts do not justify this pervasive belief.
After a comprehensive workers’ compensation reform package in 2003, employers saw their rates fall by 60 percent. Shortly after lawmakers enacted sinkhole insurance reforms, average statewide property insurance rates dropped for three years in a row. Even Citizens’ average statewide rates went down. Indeed, as recently as 2014, most property insurers were requesting rate decreases. But with AOB costs being allowed to run amok, most companies are now forced to increase their rates.
As the Legislature convenes to tackle this issue, it should bear in mind that the status quo is not hurting insurance companies—no matter what, insurers will recover their losses through higher rates, as the law requires. Consumers are the ones hurt by being forced to pay the price of enriching a small cabal of bad actors. The least lawmakers can and should do as they deliberate over what to do about AOB abuse is to listen to more than just the beneficiaries of the status quo.