Friday, September 9, 2016

AOB abuse has already led to significant rate hikes in South Florida, both from private insurers and the state-run insurer Citizens Property Insurance Corp.






The surprising reason Hurricane Hermine claims could cost insurers much more


by Caitlin Bronson | Sep 06, 2016

Hurricane Hermine – the first such storm to hit the Southeast US in more than a decade – is likely to result in manageable losses for property insurers, but changes in the industry landscape may end up costing carriers more than anticipated.

The Assignment of Benefits (AOB) legal tool was introduced in Florida as a way to allow contractors to bill and be paid by insurers directly for work performed, without involving the insured homeowner. It was meant to prevent homeowners from having to pay money upfront or deal with a sometimes complicated claims process, but insurers have long argued that repair vendors have taken advantage of AOB by artificially increasing the cost of claims, and even suing the insurer if it refuses to pay the bills.

In the wake of serious damage from Hurricane Hermine, inflated AOB claims are expected to make the storm an expensive one for property insurers.

“The private insurance industry has thus far absorbed the inflated claims associated with AOB, but with a significant storm like this one, AOB could be a big issue,” Howard Mills, global insurance regulatory leader at Deloitte, told Insurance Business America Friday. “If we have a lot of insured losses, the market could see some significant disruption.”

AOB abuse has already led to significant rate hikes in South Florida, both from private insurers and the state-run insurer Citizens Property Insurance Corp. Though state lawmakers have considered several reform proposals, no material changes have yet been enacted.

Still, Mills believes there’s no doubt insurers will be able to weather Hermine claims with ease. The industry is well-capitalized, and new advances in claims handling – including drone technology – should make the process speedy and satisfactory for consumers.

“We’ll see a much faster data return on this storm then we have in the past,” Mills said. “Insurers will be looking to showcase their new technological capabilities, and we should have a very clear picture of impact pretty early on.”

The only concern is that with many months left in the 2016 hurricane season, anxiety levels among carriers are likely to be heightened following Hermine.

“In 2005, you had Katrina, Rita and Wilma back-to-back-to-back,” Mills said. “The industry will likely be nervous given that we’ve still got a long way to go this season and the temperatures are very warm.”