Insurers expect a positive impact from long-sought changes to Florida law meant to slow property claims abuses, but they also know attorneys and contractors may find other loopholes to exploit.
The response from opportunists to the coming changes in assignment of benefits, or AOB, outran the pace of the reform bill as it wound through the state legislature, according to industry representatives. Claims spiked in advance of the July 1 effective date, with one law firm posting an online instructional video on how to file quickly, said Logan McFaddin, a regional manager at the American Property Casualty Insurance Association who lobbied for AOB reform.
"We saw a rush of trial lawyer attorneys advertising to clients ... 'Run, don't walk, to use your AOB claims,'" he said in an interview.
That phenomenon illustrates concerns from many in the industry that, despite the hard-won changes to state regulations that encouraged inflated storm damage claims and soaring litigation costs, the claim-and-lawsuit cottage industry could shift its attention to other lines of insurance, McFaddin said.
While many in the industry are "pleased" by the soon-to-be-effective law, there is a "lingering worry" that abuses could creep into other areas, agreed Lucian McMahon, a senior research specialist at the Insurance Information Institute. Years before the most recent spike in litigation, claims abuse began in personal injury protection in auto insurance. Reform measures stemmed that tide, but then similar abuses started happening in homeowners property and auto glass, he pointed out.
McMahon said the industry is dealing with a "whack-a-mole" situation as Florida has experienced several cycles of claims fraud impacting different areas of insurance due to assignment of benefits rules. Assignment of benefits is a mechanism that allows policyholders to sign away to third-party contractors their rights to collect from insurance companies in an effort to get repairs started quickly.
The Sunshine State has acquired a reputation for a litigation-friendly environment that winds up being costly to business. A study published by the U.S. Chamber of Commerce in 2018 ranked Florida first in the nation in legal costs and compensation as a percentage of state GDP.
As the reform legislation neared passage, Citizens Property Insurance Corp. estimated that the changes would reduce statewide average rate need to 10.1% from 25.2%. The drop in rate need would be even more pronounced in South Florida, which Citizens described as the "epicenter" of the legal abuse. Rate need is the amount premiums need to rise for them to be actuarially sound.
Most Florida insurers that filed for homeowners rate changes this year asked for increases, many in the double-digit percentage range, according to data reviewed by S&P Global Market Intelligence. The effects of reform could take a year to be reflected in premium pricing, but filings may be impacted in the coming months, McFaddin said.
RenaissanceRe Holdings Ltd. CEO Kevin O'Donnell said recently that fraud has become part of the price of doing business in Florida, and he has doubts that the new laws will make a difference. Heritage Insurance Holdings Inc., meanwhile, expects that the regulatory change will help improve its own financial results, but maintains a cautious outlook based on experience, CEO Bruce Lucas said during a May 7 conference call.
"Attorneys on the other side are pretty crafty, so we're going to wait and see what happens," Lucas said, according to a transcript of his remarks.
FedNat Holding Co. President and CEO Michael Braun is a bit more optimistic; he expects AOB reform to bring rational pricing back to the Florida market.
"I believe we will see our improved financial results as we will be better able to contain plaintiff's legal expenses that we then pay under the assignment of benefits," he said during an earnings conference call, according to a transcript.
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