Gov. Ron DeSantis signed a bill thats main goal is to stop bad actors in the homeowners insurance market. It would do so by changing what a contractor must do when a policy holder signs over their insurance benefits.
Since 2012, a costly loophole has been causing homeowners insurance policies to rise. Bob Ritchie is the President and CEO of American Integrity Insurance Group. He thinks he knows the cause.
“There are several major thorns and AOB is among the largest. But it’s just cutting it down to mathematics. This is a $4 billion hidden tax that has developed over the series of years, or $400 for every homeowner in the state of Florida," said Ritchie.
An AOB or assignment of benefit is when a homeowner signs over their policy to a contractor. In the perfect scenario that contractor would then seek reimbursement for their work from the insurance company, and the insurance company would provide them with a check. But Barry Gilway, president and CEO of state-backed Citizens Property Insurance, says that’s not how it always goes.
“In 47% of the cases today for Citizens, we get a suit in and there’s never been any issue raised by the customer regarding the settlement amount. So we’ll settle with the customer and then 4 or 5 months later the attorneys will send in a suit. And that’s the first indication we have of any disagreement whatsoever with the customer," said Gilway.
To fix the issue, Gilway says the legislature made changes to what must and can be done when an AOB is signed.
“It lets us know, lets the insurance company know when there is an AOB. And the other thing that’s really consumer centric is if you get a bad contractor, this allows the consumer to cancel the AOB contract without any penalty,” said Gilway.
Specifically, the law would allow a policy holder to rescind an AOB if its within 14 days of signing the agreement, or at least 30 days after work was scheduled to start and the contractor hasn’t done substantial work.
But those aren’t the only safety provisions. Rep. Paul Renner (R-Palm Coast) explains another.
“This bill will allow attorney fees to be granted based on the settlement. If the settlement is less than 25% of the disputed amount the insurer collects the fees. If the disputed amount is between 25% and 50%, neither party collects the fees. If the disputed amount is over 50%, then the assignee collects the fees," said Renner.
Gilway said that's one of the most significant changes lawmakers made this year. He believes it removes an incentive for contractors to file lawsuits.
“The problem today is that if a settlement is a dollar more than the original costs, then the insurance company owes plaintiffs fees," said Gilway.
With several provisions in place to stop the abuse of AOB, the cost of homeowners insurance is expected to decrease.
But Edie Ousley with the Florida Chamber of Commerce doesn’t expect rates to get back down to pre-AOB-crisis amounts right away.
"I think that we have to keep in mind that AOB abuse it took many years for that to truly materialize. And as it began materializing that’s when we began to seeing rates skyrocket. So if you think about the number of years it actually took for rates to become so rampant. I think it’s going to take a couple of years for things to unravel and for homeowners and consumers to see the benefit," said Ousley.
But Ousley does have one concern about the short time period before the law goes into effect.
“The law actually takes effect around July 1 and between now and then we have seen trial lawyers making a last call for all lawsuits, all AOB lawsuits. It’s a rush to the courthouse to see how many AOB lawsuits they can sign now until July 1, so that’s the downside,” said Ousley.
She says the best way for policy holders to avoid entering into an AOB is to just read.
"Read everything that they sign before they put their name either on a piece of paper or simply on an iPad. A lot of times that’s how these transactions are taking place. You’ve got to read everything. Once an AOB has been signed, at least before the reform law goes into effect, it is very difficult for consumers to back out," said Ousley.
Among other things, the bill requires contractors to provide an itemized page of all the work performed and also requires that insurance companies allow homeowners to enter into policies that don’t allow AOB contracts.