Crisis? Maybe, but top FL insurer says severity of AOB claims falling

Florida’s largest property insurer says its average cost is going down, not up, for claims associated with what many in the industry call a crisis requiring immediate legislative action, its CEO told analysts Wednesday.

That means assignment of benefits, such as when a consumer signs over control of insurance payments to a contractor or other third party.

universal“We saw a little bit uptick in frequency, nothing major,”  Universal Property & Casualty Insurance Co. CEO Sean Downes told analysts on a fourth-quarter earnings call Wednesday. “But the severity is down.”

Fort Lauderdale-based Universal has more than 572,000 policies statewide, almost 100,000 more than No. 2 state-run Citizens Property Insurance Corp., according to the lastest numbers in a state database. By number of policies, it is the leading insurer in Palm Beach and Broward counties.

Example of an AOB claim:  A pipe breaks in the middle of the night. The homeowner calls somebody to clean things up and fix damage. That somebody may tell the consumer I’ll do the work and even deal with the insurance company for you if you sign these papers.

It happens in health care all the time, but property insurers say abuses in this process are causing higher rates in South Florida now and for years to come and require aggressive legislation to rein it in. Attorneys get involved and the costs can multiply, they say.

In opposition, contractors and attorneys say some proposals are fine — such as notify the insurance company reasonably quickly — but others go too far to block consumer rights to representation.

“This is an attempt to keep high profits and raise premiums,” said Nicole Vinson, a Tampa attorney who sues insurers. “The carriers could easily remedy any improper suits by winning the court battles.  So far we have yet to hear of their victories.”

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.

Universal consultant Kenneth L. Leonard Jr. said “increasing trends in the Tri-County region” create “additional uncertainty” that is “not captured through techniques traditionally followed to develop individual territory indications.”

But regulators questioned the vague, blanket justification and Universal withdrew the request, leaving rates unchanged.

For the coming year, Downes said Wednesday a rate increase is likely but he did not specify how much.

“We are currently in the process right now of creating, gathering the data to create our rate indication,” he said. “We don’t have that information yet. Obviously, you’ve seen some of our competitors have filed for some rate increases. I think it would be a representative issue and AOB issue. I think it’s prevalent as it is, I think it’s safe to say that we probably would be looking at some sort of rate increase, but it is little too early yet right now to make that decision based upon us being in the early stages of creating that rate indication.”

But  at the same time, he let analysts know the company is taking its own action to respond to claims quickly, and seeing the average cost per AOB claim go down for standard homeowner policies known as HO-3.

Frequency refers to how many or how often such claims occur. Severity means how much they cost.

Here’s an analyst’s question and his answer from a transcript:

Q: You talked about this earlier with the reserves, but I guess how did you experience AOB change in 4Q ’16, and I guess even year-to-date 2017 versus the prior year and prior quarters? Would you say, it’s looking stable? Do you think it’s getting worse or you’re potentially seeing some signs of light?

Sean Downes: We saw a little bit uptick in frequency nothing major. But the severity is down, just give you couple of numbers. In 2014, on average HO-3 with AOB connected to it, we had a severity about 21,000. In ’15, it was around 19,400. In ’16 right now, as of this date, it’s not fully cooked, it’s running around 17,590. So, I think once that’s fully cooked, I am sure you are going to be right around that 19,000 number. So, from a severity perspective, I believe that it’s relatively flat. From a peer represented issue, we are seeing a much more aggressive law firms out there right now and taking shots at claims.

So, we have been working on that specifically and trying to battle that situation, I think that’s something that obviously is affecting the industry as a whole, and we’re not immune to that. But I think our ability to get out of these claims quicker with a fast-track team in the day of the claim and the next day is mitigating the potential for plaintiffs law firms, public adjusters, contractors et cetera to intervene to create that separation from us to our insured. So, I think it’s an issue that I think we’re battling as good as we can.

 

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