Insurers see a scam, critics see an excuse to raise rates

Article Courtesy of The Tampa Bay Times

By John Romano

Published March 27, 2016


Let's give them the benefit of the doubt.

Let's assume the attorneys are entirely benevolent, the insurance companies have your best interest at heart and the contractors haven't exploited a rigged system.

Even if that's all true, we may still have a problem.

Insurance claims for non-storm related water damage in homes are on the rise, both in numbers and in cost. The numbers are rising so fast, insurers say, that you will soon be paying higher rates because too many people are cashing in on a technicality.

"It's a bigger problem right now in South Florida, but it is absolutely coming up the state,'' said William Stander, executive director of the Florida Property & Casualty Association, an insurance trade group. "The use of these assignment (claims) is on the rise in both the Orlando and Tampa markets.''

At issue is a legal/business practice known as "assignment of benefits''.

Consumer advocates and insurance companies both agree the concept behind these assignment claims is a good one. For the most part, they exist to help individual homeowners bypass insurance red tape and get repairs done quickly.

Here's how it works:

You come home from a late movie to find a pipe has burst in the bathroom and your floor is flooded. You call a plumber and a home clean-up company at midnight, and they suggest you sign an "assignment of benefits'' form.

This document means the contractors are now the ones dealing with your insurance company, including any legal disputes that may arise over the cost of repairs.

For the individual homeowner, it can be a great tool. Your home is fixed quickly, and hassles are kept to a minimum.

But insurance companies say it has become ripe for abuse, and it's costing them so much money that it's now driving up Florida's already nation-high rates.

The problem, supposedly, is contractors are filing excessive bills while finishing repairs before insurance adjustors even arrive. If the insurance company balks at paying, it's turned over to lawyers who are also operating under the "assignment of benefits.''

The insurance companies say it has become a cottage industry. Water damage claims have risen 46 percent since 2010, according to state officials, and the number of "assignment of benefits'' agreements have nearly tripled.

To make the point that it's become more of a profit-driven loophole rather than a consumer protection issue, Stander says a handful of law firms are now handling more than 50 percent of the lawsuits. Since most of the claims start out legitimately the issue is exaggeration insurance companies typically settle rather than go to court.

"As these losses grow, the insurance company has got to charge for it,'' Stander said. "If these assignments continue to grow, we have to plan accordingly.''

Citizens Property Insurance president and CEO Barry Gilway recently told his Board of Governors that this is becoming a crisis. Citizens rates in South Florida will likely rise the maximum 10 percent annually for the foreseeable future, which could means hundreds or even thousands of dollars in higher bills for homeowners.

Lobbyists for the industry have been trying to get lawmakers to pass reforms the past few years, but the Legislature has not yet acted.

So should the politicians get involved?

Perhaps, but only if they make sure the pendulum doesn't swing too far in any one direction. "Assignment of benefits'' exists for a reason. The typical homeowner has neither the time nor the expertise to deal with insurance companies, and they often get the run-around in times of emergency.

If insurance companies want to cut down on the so-called middle man, they need to be more attentive to the needs of their customers.

They need to hire more adjustors and get them on the scene much quicker. And the state needs to revise a law that gives insurance companies up to 90 days to pay or deny a claim.

If it's true that some contractors and lawyers have taken advantage of the "assignment of benefits'' provision, you can be reasonably sure that some insurance companies will take advantage if the law is somehow weakened.

On second thought, let's not give anyone the benefit of the doubt.