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Citizens Property Insurance Corp. will post a net loss for 2016, its first loss in more than a decade, as water loss claims, assignment of benefit (AOB) abuse and litigation costs increasingly impact the company’s bottom line, according to a statement from the Florida state-run insurer.

The Citizens Board of Governors was told Wednesday the state’s insurer of last resort will post a $27.1 million net loss for 2016, its first since 2005. The company said the loss comes despite minimal damage from H

Without significant statutory reforms, Citizens will be forced to pass those higher costs on to its customers in the form of higher rates for the foreseeable future, said Citizens Board of Governors Chairman Chris Gardner.

“Every year, we rely on standardized, accepted actuarial principles to set our rates,” Gardner said “Last year, the same principles that provided rate decreases to our customers in recent years translated into hikes for 84 percent of our policyholders. Without legislative changes, that trend will continue.”

hurricane Matthew, the first major hurricane to impact Florida in 11 years

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This will affect Fort Lauderdale &  S. Florida and since we are in La Nina years, which is also very likely to occur for the next 3-5 years. Please call L & S Insurance at 1-888-244-7400 for free quotes on Home Insurance, Auto, Flood, Private Flood, Business & Commercial policies and Life & Financial products as well.

Ratings company Demotech is holding off on issuing large-scale ratings downgrades of Florida property insurers for now, after a number of insurers heeded its warning of last month about the effects of assignment of benefits abuse and state court rulings by boosting their claims reserves and policyholder surplus.

After warning in February that at least 10 to 15 Florida property/casualty carriers would face downgrades if they did not take immediate action to shore up their reserves in light of deteriorating conditions in the state, Demotech said March 16 that, after working with insurers to make adjustments, it slightly downgraded only one carrier

The ratings firm said it is also monitoring three insurers — Prepared, Mount Beacon and Elements— that have been or are in the process of being sold as a result of the situation in Florida.

Joseph Petrelli, president and CEO of Ohio-based Demotech, which rates 57 carriers in Florida and 397 nationwide, said his company worked individually with companies in Florida to analyze their financial standing, strengthen their claims reserves, and provide other guidance on what they could do to avoid a ratings downgrade. The result has been $355 million in additional reserves and policyholder surplus among the Florida carriers it rates, Petrelli said.

Demotech said last month that Florida’s property insurers are facing an “uncertain operating environment” as a result of the escalating AOB crisis that has caused the number of litigated water loss claims to skyrocket over the past few years, particularly for the state-run insurer Citizens.

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The Florida insurance market has been a hotbed of controversy over the last year, and many are looking at the Florida State Legislature to alleviate some of the concerns coming from consumers, businesses and the industry itself.

From insurance fraud to workers’ compensation to the escalating assignment of benefits (AOB) issue, there is no shortage of insurance topics for lawmakers to discuss when the 2017 session begins March 7.

Workers Comp

Legislation addressing the tailspin of Florida’s workers’ compensation market is considered a top priority, thanks to several 2016 decisions from the Florida Supreme Court.


The industry is backing a bill (Senate Bill 1038) drafted by the Florida Office of Insurance Regulation and sponsored by State Senators Dorothy Hukill and Kathleen Passsidomo to address the abuse of assignment of benefits in Florida, particularly related to water claims

Insurance Fraud

Florida CFO Jeff Atwater announced that he is working with State Sen. Jeff Brandes and Rep. Holly Raschien to “tackle the ever-evolving issue of insurance fraud in Florida.”

Several bills have been filed, including Senate Bill 1012, 1014, and House Bill 1007 and 1009.

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Florida now has legislation backed by the top Florida insurance regulator and the industry that promises to curtail homeowners insurance abuse under the assignment of benefits (AOB) feature.

Senate Bill 1038, filed Feb. 17 by State Sen. Dorothy Hukill and co-sponsored by Sen. Kathleen Passidomo, seeks to clarify the intent of the assignment of benefits provision for policyholders and limit the scope of benefits provided to those other than the named insured on the policy

The assignment of benefits bill would also instill specified conditions for assignment agreements to be valid. The bill stipulates that an assignment agreement will not be valid unless it meets the following conditions:

  • Agreement is in writing and is executed by all named insureds
  • Allows insureds to rescind the assignment agreement within seven business days without penalty
  • Requires the assignee to provide a copy of the assigned agreement to the insured no later than three business days after the agreement is executed;
  • And includes a written, itemized, per-unit cost estimate of the work to be performed by the assignee.

Other stipulations of the bill include: prohibiting certain provisions in an assignment agreement; specifying requirements for an assignee or transferee; and requiring an assignee to meet certain requirements as a condition precedent to filing suit under a policy.

Under Florida’s current one-way attorney fee statute, policyholders suing their insurer over a claim dispute can recover their attorney’s fees if the insurer is shown to have underpaid the claim, by any amount. The goal of the bill is to keep the assignment of benefits consumer protection in place, but take away the incentive – the one-way attorney fee – that the industry claims is driving abuse by assignees, who have included unregulated water mitigation, remediation and roofing contractors typically working with attorney groups.

If passed by the Legislature and signed into law, the bill would become effective July 1, 2017

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Assignment of benefits abuse has escalated over the last five years to the point where it is now a serious disruption to Florida’s insurance market.

The abuse, which is especially rampant in South Florida, stems from unscrupulous contractors and attorneys cashing in on homeowners dealing with a water loss, such as a burst pipe or roof leak. The “bad actors,” as they have been dubbed by the industry, use an AOB to acquire the homeowners’ insurance benefits, file inflated claims, and then lawsuits against insurers when those claims are disputed or denied

The industry hopes this will be the year that the Florida Legislature addresses the problem.

AOB is such a hot topic in Florida right now that it dominated discussions on almost every panel and between attendees of the Florida Chamber of Commerce’s Florida Insurance Summit held Feb. 1-3 in Miami. A glance at the numbers from various Florida sources tells the story of why:

  • Frequency of water claims rose 46 percent and severity increased 28 percent between 2010 and 2015 (OIR 2015 Data Call)
  • AOB property insurance claims totaled 28,000 in 2016, up from 843 in 2010 and 405 in 2006 (Florida CFO Jeff Atwater)
  • Florida’s Citizens saw a 30 percent increase in new lawsuits filed against the insurer between January and November 2016 (Citizens)
  • 50 percent of Citizens’ water-related claims resulted in litigation in 2016, up from 15 percent in 2011 (Citizens)
  • As of October 2016, Citizens had 9,306 litigated claims pending and continues to receive an average of approximately 850 new claims per month (average of approximately 980 per month from August to October)
  • In South Florida, the average AOB claim costs more than $32,000, nearly triple the average of non-AOB claims (Florida Consumer Protection Coalition)

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Assignment of benefits abuse has become such a well-known problem in the state of Florida this year that it now just goes by the nickname “AOB.”

The issue with AOB comes from when a policyholder suffers a loss, such as water damage to their home, and then signs over their insurance policy to the person repairing the damage. Repair contractors utilizing the AOB on behalf of the insured often work with attorneys who then sue the insurance company over the claim

Florida’s one-way attorney fee statute has encouraged these suits because the insurance company is typically left paying the attorney fees. In many cases, policyholders don’t know the lawsuit has even been filed.

Florida’s state-run insurer Citizens has been the most affected by this abuse. Citizens CEO and Executive Director Barry Gilway says that the negative impact on the pricing of property insurance and availability of coverage in Florida is getting worse. Gilway said while the gross misuse of the AOB form is a major component of the issue, the problem has really become a litigation issue relating to all non-wind water claims.

“The situation is deteriorating even further at Citizens,” Gilway told Insurance Journal. “Despite a book of business that has stabilized at around 490,000 policies, we are now projecting the number of lawsuits received each month will grow from 900 this year to over 1,000 in 2017. And yes, it is the same 10-15 firms that continue to be responsible for 60 percent of the litigation across the state.”

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In Fort Lauderdale and all of S. Florida some people do not get covered as they should. Most do, but this will help the few who did not get paid. They will all be costly and come with Litigation so I know for sure we will all pay for this with more rate hikes for many years to come. Water Damage claims, Hurricane Matthew and now this?? How much more can we take. Please call L & S Insurance at 1-888-244-7400 for free quotes on Home Insurance, Auto, Flood, Private Flood, Business & Commercial & Life & financial products as well.

John Sebo v. American Home Assurance Company, Inc. Case No.: SC14-897 (Fla. Dec. 1, 2016) image

John Sebo purchased a four year old home in Naples, Florida. American Home Assurance Company (AHAC) provided homeowners insurance. The policy insured against “all risks.” Shortly after the purchase, water began to intrude throughout the home. It became clear that the house suffered from major design and construction defects. AHAC denied coverage for most of the claimed losses. Trial proceeded against AHAC, where Mr. Sebo sought a declaration that the policy provided coverage for his damages.
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