In case it’s not apparent, and even if it’s not welcomed, agents are on the front line of the Assignment of Benefits (AOB) fight. They (you) are who consumers turn to for advice after a loss. You are the ones who often have the opportunity, sometimes even the obligation, to assist with recovery efforts, particularly when it comes to avoiding fraud and/or unethical practices by remediators.
Recently, Jeff Grady, President and CEO of the Florida Association of Insurance Agents (FAIA), posted information for agents on AOB. While it is not customary for me to do so, I’ve reproduced that blog, with permission and in its entirety, so agents across Florida can learn more about the insidious nature of the AOB problem and, more importantly, what they can do to help in the fight.
Here now is the entire unedited version of Jeff Grady’s blog and the five recommendations provided to agent members of the FAIA.
|Assignment of Benefits – What Agents Need to Know
Posted by Jeff Grady on Jun 30th, 2015 10:50am
|Reports from member agents, carriers, and consumers reveal that the issue of “Assignment of Benefits” or AOB, is quickly becoming Florida’s next BIG insurance crisis. Adverse development from AOB has plagued property insurers in recent years and now, agents are experiencing direct hits to their bottom lines via increasing loss ratios and outright contract cancellations by carriers—most trying to curtail writings in territories where the practice is more prevalent.
Again, these actions are being blamed on abusive billing practices and outright fraud by the growing population of emergency remediators, mostly roofers and water extraction contractors, who require the signing of a contract that assigns the benefits of your client’s insurance policy to the contractor.
For the most part, it does not appear “real roofers” are involved in these shenanigans. Instead, a growing number of bad apples have discovered a method for locating high-end neighborhoods with old roofs, soliciting homeowners months or even years after an alleged hail event, promising them a “free” roof, and securing the AOB. You’ve read or heard the horror stories about what happens next. If not, I encourage you to visit former FAIA senior staff member and industry expert Scott Johnson’s website. There, you’ll find any number of disturbing tales of fraud and a whole lot more on AOB abuse.
The abuses have become so rampant that even the Florida Roofing & Sheet Metal Association, which represents the roofers before the legislature, favors an outright ban of AOB. Most of its members don’t even know what AOB is, until they hear/read about the fraudulent schemes in the media. Water extractors, on the other hand, abuse AOB in an entirely different manner and, unlike roofers, are completely unregulated. This presents different issues and challenges for agents.
First, they aren’t soliciting door to door like the unethical roofers. Water extractors have to be called by your clients, usually after a pipe or roof leak. That’s why they are calling on agents for referrals and pushing hard with all manner of incentives for CSRs. Sometimes the plumber called first gets a kickback or referral fee, as high as $1,500 in some areas. This has caused some plumbers to also begin offering referral fees to CSRs, sometimes without the agency principal’s knowledge. In fact, FAIA has recently learned of an agency appointment that was terminated when a carrier found out this activity was occurring.
Another difference with water extractors is that, unlike the roofers, there’s little potential for consumers to improve their situation after a water loss. With the roofing scam, even though the workmanship and other issues can be devastating, there is at least the prospect of a “free” roof replacement. When your clients, desperate for water remediation, sign an AOB contract before the drying begins, it far too often results in a fraudulently inflated invoice to one of your appointed companies. By most accounts, the charges are 300% or more above the norm. In addition, if companies question the inflated invoices (and, sometimes even if they don’t) an AOB lawsuit usually follows and the clock ticks on attorney fees averaging in the neighborhood of $5,000 per claim. That’s on top of the inflated invoice!
If you’re not alarmed yet, remember this: water losses are in excess of 50% of all non-hurricane losses, for every carrier and almost every agency. Citizens’ water losses, for example, are nearly 60% of the company’s total non-catastrophic payout. Results like this indicate a material impact to the bottom line of every carrier in Florida, and thus to every agent writing residential property business.
Perhaps you saw our AOB video supporting reforms during the last legislative session. Unfortunately, lawmakers failed to implement those reforms, and a recent string of court decisions reinforces that only the Legislature can fix this problem. FAIA will devote considerable time to the AOB issue during the association’s annual Planning Session in August.
In the meantime, FAIA has a few suggestions to help protect your agency and clients from AOB fraud:
1) Never recommend a vendor or contractor that uses AOB. At best it’s a red flag and, there are always other vendors available. In fact, a majority (for now) do not use AOB. Also, be on the lookout for other red flags such as vendors that pay referral fees to plumbers, CSRs or agents.
2) If you maintain a list of vendors for your clients to call or use, cull from that list any that use AOB. Contact water extraction firms if necessary and ask if they use AOB. When they call on you, as many are doing right now, ask them if they use AOB and ask for a copy of their work authorization contract. Note: it is acceptable if they use the “Direction to pay” approach or something similar but, not AOB.
3) Review the vendors recommended by your carriers. Some carriers have several vendors they recommend, while a few recommend only one. Once you know who they are, never stray from recommending them to your clients. FAIA Member Services recently performed some research and found that more carriers recommend RyTech than any other water extraction company You, however, may have a local vendor you prefer. That’s fine, but…do your due diligence. When in doubt, recommend Rytech or another equally reliable vendor preferred by one or more of your carriers.
4) Consider developing a proactive approach. Write to your clients, email them or include a notice in your next newsletter about the dangers of AOB. Enlist your CSRs in the campaign. Tell them which vendors you or your carriers recommend. And, remind your clients that the safest and most results-oriented water extractors specialize in water and mold remediation and do not perform other contracting services, such as drywall, flooring, etc.
5) Finally, we know most agents are hesitant to recommend vendors to any client, and instead provide your clients who ask with a list of vendors to call. That’s certainly a good practice for most situations, but water losses and AOB may require a different approach. To the extent that your clients fall victim to someone on your “list to call,” you are still exposed. And, your agency is still being harmed indirectly via its loss ratio, carrier relationships, and client retention. Once you find a water extractor you can trust, one that doesn’t pay referral fees or use AOB and that guarantees its work and response time, recommend that vendor to your clients.
You can be sure that FAIA will be working with carriers and willing lawmakers, to rid the entire state of the AOB problem. While your association works on a more permanent solution, be proactive and do your best to advise clients on how to avoid becoming a victim of AOB abuse.
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