Number two on the list of what insurance companies are most afraid of right now — after billions of dollars in Hurricane Irma claims — are armies of contractors and attorneys swelling those claims by billions of dollars more.
In South Florida, insurers have been raising rates for several years and blaming third-party repair contractors who persuade policyholders to sign over claims benefits and then sue if the insurer denies or underpays the contractors’ invoices — dramatically increasing claims costs.
The Consumer Protection Coalition, a public awareness effort formed by the Florida Chamber of Commerce to generate support for legislation to curb claims abuses, warned consumers this week that Irma “could create new opportunities for unscrupulous home repair vendors and trial attorneys to profit off the disaster.”
What results, the notice said, “are increased insurance costs that put the dream of home ownership out of reach for many Floridians.”
With no major hurricane striking South Florida since 2005, the higher costs have stemmed mostly from everyday claims such as damage from burst pipes or leaking water heaters.
But Hurricane Irma, insurers fear, could unleash a fresh wave of assignment-related abuses and lawsuits.
Heritage Property and Casualty Insurance Co. sent an email notice to its customers on Saturday imploring them to “call us as soon as possible after they and their family are safe.”
“Please do not contract with any vendor except a vendor approved by Heritage,” the notice said. “You can call our claims department and we will dispatch a reputable, licensed contractor to your home.”
Policyholders who sign an assignment of benefits form “no longer have the right to receive any insurance payments from Heritage, and such payments will belong to the contractor.”
The notice warns of “repairs not being made, theft of insurance payouts, unlivable conditions in your home, and it will complicate, delay, reduce and possibly result in the denial of a claim settlement.
“Policyholders should not sign any documents without obtaining permission from Heritage.”
Involvement of third-party contractors and attorneys drive up claims costs, insurers say, because contractors inflate their invoices and state law permits attorneys to collect legal fees when the insurers ultimately settle.
When policyholders sign over benefits of their claims, insurers often aren’t notified of claims and can’t inspect damages before work is under way. Most insurers recently adopted new policy language requiring policyholders to notify their insurers of damages within 72 hours.
But repair contractors and attorneys who represent them counter insurers’ arguments by saying companies routinely lowball settlement offers or deny responsibility for covered losses. Contractors say they ask policyholders to sign over the right to bill insurers for repairs because they would otherwise be forced to seek large down payments or place liens on homes to start emergency work.
Too often, they say, insurers fail to send adjusters to inspect damaged properties or pay for losses in a timely manner, leaving homeowners with little choice but to seek help from professionals adept at dealing with claims.