Update Wednesday: Gov. Scott is scheduled to meet at 4:30 p.m. today with Sen. Flores.
Original post: Not going so fast: Legislation that insurers and their allies want as state lawmakers round the clubhouse turn on a session that ends in early May.
Picking up: Bristling references to scams and smears and appeals for help to Gov. Rick Scott.
Fun fact: The biggest single contribution to Scott’s Let’s Get to Work committee in 2017 has been $250,000 from Skye Lane Properties, a subsidiary of Heritage Property & Casualty Insurance Co.
Insurers say they need legislation to rein in contractors and lawyers who are driving up costs on claims like damage from faulty plumbing or roofs. It starts when consumers sign “assignment of benefits” agreements, giving third parties control of insurance benefits. Then contractors go to court, where their attorneys can pick up big fees under laws designed to protect little-guy consumers. Insurers say the system is being hijacked.
Opposing them: legislators who are sometimes also lawyers. They say insurers could solve the problem by paying fair claims quickly, or simply winning bogus cases in court.
“We are halfway through the 2017 legislative session, and it appears another year may pass without meaningful reforms to end AOB abuse in Florida,” lamented Dulce Suarez-Resnick, an independent insurance agent in Miami and member of the Latin American Association of Insurance Agents. “Make no mistake: If the Legislature fails to address the growing cancer of AOB for a fifth straight year, Florida’s hardworking families are the ones who will lose.”
A coalition supporting the legislation presented petition signatures and called for action last week.
On Thursday, the CEO of state-run Citizens Property Insurance Corp. talked to Gov. Rick Scott about AOB. So did Florida insurance commissioner David Altmaier, who supports reforms insurers want.
“Gov. Scott has continued to meet with industry leaders and consumers on the need to fix the current AOB issue in Florida,” a Scott spokeswoman said. “The call with Commissioner Altmaier and President Gilway this morning was one of the many conversations and meetings he has had with them on AOB over the past few months.”
Scott’s spokesman continued, “Our office will continue to work with the industry to develop a legislative solution that prevents homeowner’s insurance from continuing to rise. As of today, while both the House and the Senate have AOB legislation moving, the proposals are very different. We encourage the legislature to also work with the industry and consumers to fix the skyrocketing costs on homeowners and close the loopholes which exist in current law that drive-up costs on homeowners due to attorney’s fees for AOB claims.”
It has been a prickly fight. Insurance companies are “smearing” her, said Sen. Anitere Flores, R-Miami, after her committee last week passed a bill, SB 1218, that they did not like. Sponsored by attorney and state Sen. Gary Farmer, D-Fort Lauderdale, the bill would license water clean-up contractors for the first time and add some consumer protections, but make no changes to the state’s “one-way” attorney fee rules insurers say are being abused. Instead, insurers would be barred from passing legal fees on to customers when they lose.
As The Palm Beach Post has reported, sorting through claims of a crisis can be tricky. Florida’s largest insurer, Universal Property & Casualty Insurance Co., told stock analysts the severity of its AOB claims has been falling for a couple of years and the frequency was “nothing major.” It did this by responding to claims quickly, its CEO said.
Citizens blamed AOB for a $27 million loss in 2016, but it also spent six times that amount, $181 million, on optional offshore reinsurance that did not pay any claims.
Citizens compiled a list of 13 law firms it says are the behind the most serious problems. One of them is Trujillo Vargas Gonzalez Hevia, in which House Appropriations Chairman Carlos Trujillo is a name partner. A reporter asked whether Trujillo was being accused of scamming people, floridapolitics.com reported.
“I did not say that or infer it, sir,” Gilway said. “What I’m saying, basically, is: There are 13 firms that are driving this, from Citizens’ perspective.”
For his part, Farmer said the state-run insurer could make things better by paying claims quickly: “Citizens is the problem — not AOB, not attorney fees.”
Universal elaborates: Universal Property & Casualty representative Travis Miller reached out to explain more about his company’s AOB situation, as described above. Here is a full statement:
“First, the article might imply to some readers that the frequency of AOB claims is “nothing major.” However, the rough transcript or summary of the earnings call shows that Mr. Downes was not suggesting the frequency of these claims is nothing major. Instead, Mr. Downes was asked to compare the fourth quarter of 2016 and early 2017 with the prior year and prior quarters. In that regard, he was asked whether the company’s experience with AOB claims is stable, getting worse, or improving. Mr. Downes responded, “We saw a little bit of an uptick in frequency but nothing major.” In other words, in the fourth quarter of 2016 and early 2017, the company saw an increase in frequency, but that increase was small in relation to prior periods. As has been widely discussed, the frequency of claims with AOBs has increased significantly in Florida over a number of years. When making a comparison to prior quarters or the prior year, we must keep in mind that we’re starting from the elevated frequency that already exists. The frequency of AOB claims in the latter part of 2016 was not meaningfully higher than in earlier quarters or the prior year, but this does not suggest that the frequency of these claims doesn’t remain high or that the frequency doesn’t remain a key contributor to losses.
“Second, while it is accurate to say that the severity of Universal’s AOB claims has been falling for a couple of years, it is important to bear in mind that the average severity of AOB claims remains significantly higher than non-AOB claims. Mr. Downes mentioned that the average severity peaked at about $21,000 per AOB claim in 2014 before falling to $19,400 in 2015, and more recently to about $19,000 for 2016. Despite these improvements, the average loss on these claims is still about three times higher than for a typical claim. Again, Mr. Downes was asked how the company’s recent experience in the fourth quarter of 2016 compared to prior quarters or the prior year. From this standpoint, while the company has seen a reduction in the average severity of AOB claims, it is important to note that the average severity for these claims remains much higher than for non-AOB claims and much higher than historical averages.
“As you know, insured losses reflect the frequency (i.e., number) of losses times the severity (i.e., amount). Despite the improvements Mr. Downes mentioned, the AOB claims continue to show both higher frequency and higher severity than other claims, which in turn results in a greater contribution to the overall insured losses. I would not want your readers to misinterpret the statements below about frequency and severity to suggest that the AOB issue is not having a significant effect on policyholders.”
The Post previously previously addressed this issue in some detail.
Here’s an analyst’s question and the answer from Downes in 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.