Best’s Commentary: Assignment of Benefits Reform Bill Is Credit-Positive for Florida Insurers

OLDWICK, N.J.--()--AM Best believes that assignment of benefits (AOB) reform that has passed in the Florida Legislature will be credit-positive for rated insurance companies writing significant amounts of homeowners insurance in the state once signed into law.

In a new Best’s Commentary, titled, “Assignment of Benefits Reform Bill Is Credit-Positive for Florida Insurers,” AM Best states that the bill, which is designed to address the abuse of post-loss AOBs for residential or commercial property insurance claims and limiting one-way attorney’s fees related to AOB agreements, is expected to lower the number of AOB-related lawsuits. The lawsuits rose to nearly 135,000 through November 2018, from 79,000 in 2013 and just 1,300 in 2000. Florida’s governor is expected to sign the bill.

The operating performance of AM Best-rated entities has been challenged in recent years in part due to the rise in litigated claims. The law will diminish the frequency of lawsuits, which in turn would lower legal fees for insurers and potentially lead to pricing relief for consumers. The bill is applicable to just homeowners and commercial property owners, and does not address AOB abuse in the personal automobile line. The abuse of the AOB rule by some contractors, particularly in South Florida, have increased losses and loss adjustment expenses for companies writing homeowners policies in Florida, as well as a sharp rise in insurers’ legal costs. In 2009, legal costs constituted 6% of incurred losses for homeowners’ multi-peril property insurance for companies domiciled in Florida, compared with a peak of more than 16% in 2013.

Some insurers have been booking additional reserves due to the increase in lawsuits, so passage of the bill likely will lead to more favorable reserve development as reserves set aside for potential lawsuits are released. Given that insurers with exposure in Florida have partnered with reinsurers, as well as using insurance-linked securities, much of the loss creep associated with AOB issues also has affected their reinsurers. The reform bill will alleviate some of the pressures on reinsurers’ reserve development as well.

AM Best believes catastrophe model output also should be better informed, as models did not previously account for AOB in modeled loss estimates.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285089.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Jason Hopper
Associate Director,
Industry Research and Analytics
+1 908 439 2200, ext. 5016
jason.hopper@ambest.com

Sridhar Manyem
Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5612
sridhar.manyem@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

Contacts

Jason Hopper
Associate Director,
Industry Research and Analytics
+1 908 439 2200, ext. 5016
jason.hopper@ambest.com

Sridhar Manyem
Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5612
sridhar.manyem@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com