'Loss creep' from major recent hurricanes threatens premium hike in Florida
Claims from major 2017 and 2018 hurricanes are totaling 25% more than estimated.
A new report is ringing alarms about late-breaking losses from major 2017 and 2018 catastrophe events and the threat of an insurance rate hike for Florida homeowners. According to global reinsurance intermediary firm JLT Re, claims from Hurricanes Irma, Harvey and Maria are now totaling 17-26% more than originally estimated.
Hurricane Irma, which brought mass devastation to central Florida in September 2017, is totaling 26% more claims than estimated. Claims from Maria and Harvey are totaling 25% and 17% more, respectively.
These claims occurrences are collectively known as “loss creep,” according to COIN Re CEO Ted Blanch. Blanch adds the factors contributing to this “loss creep” are not only affecting insurers and reinsurers, but it is also taking money out of the pockets of Florida homeowners.
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Factors driving increased claims
The JLT Re report attributes the increased hurricane losses partly to loss adjustment expenses, meaning costs incurred in the processing of claims, Blanch explains. Some loss adjustment expenses could be private investigator’s fees and expenses for claims investigations.
Another factor driving these rising claims costs is the growing volume of assignment-of-benefits (AOB) agreements. This is when a policyholder transfers to a third party the right to collect an insurance claim as total or partial payment for the contractor’s repair work.
The issue with these agreements is their tendency to lead to fraud, especially in Florida in thanks to two windows in state law.
AOB abuse in Florida
The first peculiarity in Florida state law is that no insurer consent is required for an AOB, preventing insurers from controlling the cost inflation.
The second is the one-way attorney’s fee provision, where if an insured person or their named beneficiary succeeds in a first-party suit against an insurer, the court awards a “reasonable sum” that the insurer must pay to compensate the plaintiff’s attorneys. However, if the insurer wins, the insured owes them nothing.
According to the Insurance Information Institute (I.I.I.), AOB abuse in Florida serves as a “hidden tax” on consumers, driving up already very costly insurance premiums. The Florida insurance market has the highest homeowners insurance costs in the country, according to Value Penguin, who says rate increases are most pronounced in storm-affected areas, along with areas of rampant non-weather AOB abuse.
Blanch and others are advocating for legislative reform to combat these rising AOB abuses.
Related: Florida Senate prepares for controversial ‘AOB’ insurance fight