South Florida Homeowners Insurance AOB Abuse Crisis - No Legislative Action So Insurance Companies Are Making Changes... But Rate Increases Are Coming
The Palm Beach Post recently spoke to the CEO of Universal Property & Casualty Insurance Company CEO Sean Downes about the AOB (Assignment of Benefits) issues in South Florida. He reported a slight uptick in frequency with severity down for AOB homeowners claims.
Insurers use the frequency and severity method to determine the likelihood they will have to pay out for a claim. Frequency refers to the number of claims an insurer expects to see. High frequency means they expect to see a large number of claims. Severity refers to the cost of the claim. Meaning high severity claims are more expensive than average estimates and low severity claims are less than the average.
The Palm Beach Post noted, “Downes made it abundantly clear he was not saying he sees no problem with AOB or no need for legislative action. Last year Universal proposed a blanket rate increase of 8.1 percent for homeowners across South Florida including Palm Beach County, and cited AOB among the reasons.” Downes said a rate increase is likely but he did not mention a percentage.
Universal Property & Casualty Insurance Company is the leading insurer in Broward and Palm Beach counties. State run Citizens Insurance Corporation is the second largest.
In an article from The Sun Sentinel, they warn homeowners are in for a shock come renewal. Insurance companies in South Florida are asking for more rate increases.
The Sun Sentinel reported the following rate increase requests for single-family homeowner multi-peril policies by the Florida Office of Insurance Regulation. Percentages are statewide average premium increases. Florida regulators have 90 days to approve or reject the filings:
· St. Johns Insurance Co., 3.1 percent; 9,490 Tri-County policies; filed Dec. 29
· Elements Property Insurance Co., 9.5 percent; 6,364 Tri-County policies; filed Dec. 29
· Heritage Property & Casualty (Preferred Homeowners), 9.9 percent; 16,285 Tri-County policies; filed Dec. 20
· Tower Hill Prime Insurance Co., 8.9 percent; 18,827 Tri-County policies; filed Dec. 2
· Florida Peninsula (Preferred), 9.0 percent; (Elite), 9.7 percent; 30,193 Tri-County policies; filed Jan. 11
· People’s Trust; 14.5 percent; 54,267 Tri-County policies; filed Jan. 30
· American Integrity, 4.2 percent; 7,748 Tri-County policies; filed Feb. 3
· Castle Key Insurance Co., 7.7 percent; 6,634 Tri-County policies; filed Feb. 6
· Castle Key Indemnity, 12 percent; 1,960 Tri-County policies; filed Feb. 6
· Federated National, 6.5 percent; 36,589 Tri-County policies; filed Feb. 17
The Sun Sentinel spoke to People’s Trust Insurance spokeswoman Michelle Ubben about the AOB crisis. “Despite policy language binding customers to an insurer’s approved contractors, some, particularly in South Florida, call their own contractors and assign benefits to them anyway. People’s Trust Insurance has revised its policy language to more clearly prohibit that ability, and the company hopes the tightened language will reduce losses so the proposed rate increases do not have to be fully implemented.” Ubben said.
Proposed changes to the state law have failed over the years. The Sun Sentinel states, “There are several bills pending in Tallahassee including one broadly supported by insurers and regulators that would prevent contractors working under assignments from claiming legal fees in suits against insurers.” But for now companies like Universal and People’s Trust are working to reduce AOB claims.
Universal Property & Casualty Insurance Company told their analysts they are taking action by responding to claims quickly bringing the average cost per AOB claim down for standard HO-3 policy claims. People’s Trust has changed their policy language to reduce AOB claims and losses.
As independent insurance agents, what are your fears about the AOB crisis? Do you think legislation will ever be passed to stop the abuse? Do you have ideas to help prevent AOB abuse? Are your homeowner customers aware of the rate increase to come?
There have been 2 recent announcements by big insurance companies who have seen huge profit losses on the auto insurance side due to wrecks. The biggest cause, distracted driving.
State Farm, one of the 2 companies reporting recent losses, surveyed drivers and found that 36% admitted to texting and driving. A whopping 64% of 18 - 29 year olds surveyed said they have texted while driving. You’ve seen the ads and the billboards with the text message icon and message that says, “It can wait.”
Sadly people have a difficult time putting their phone down in the car. The survey is a testament to that. It’s not just texting, it’s social media, email, news notifications and any number of other app notifications.
Everyone better prepare to pay the price. Rate increases are coming. These rate increases will likely be as much as an insurance company can get approved for by each state’s department of insurance.
There is a silver lining for independent insurance agents. With rates going up, consumers will be shopping around. So batten down the hatches and prepare to quote auto insurance.
Vikki Thomas has been working in the insurance industry since 1995. Vikki has worked for several carriers in customer service, quality assurance, underwriting, product management and marketing. Vikki has worked at AccuAgency since 2008.