Public Adjuster Fee’s & Public Policy!

They certainly don’t need any more bad press.  Still…recent stories about public adjusters are instructive and may even warn of real challenges ahead for Florida’s tenuous property market.

Here’s what I mean.

In the wake of Hurricane Sandy,  New Jersey’s Insurance Department circulated a bulletin warning PA’s against overcharging storm victims. According to the News Release some were requiring up to a 50% contingency fee–siphoning for themselves half of what the policyholder had paid for.

“Unconscionable” was the word New Jersey’s Acting Commissioner Ken Kobylowski used to describe what was taking place.

Then, early last week, in a Special to the Miami Herald defense attorney Jason Wolf published an enlightening account of how PA’s drive up everyone’s costs with what he called “…no risk” sales pitches “…that money is out there for the taking.”  He warned consumers to “think twice before hiring a public adjuster” and cited their “…statutorily mandated…” contingency fees for driving up premiums.

Those stories were punctuated last Friday when CFO, Jeff Atwater announced arrests stemming from yet another public adjuster fraud ring.  And…as further proof a Citizens inspector general needs to report directly to the FSC as CFO Atwater has requested, and that it also be charged with examining external Citizens threats, as I have suggested–guess which carrier this criminal enterprise targeted?

No surprise–it was Citizens (again) notifying DFS that Miami Public Adjuster, Roberto Alvarez (44), was suspected of submitting $270,000 in fraudulent claims, on behalf of four homeowners he  recruited to file and inflate various types of fake losses, especially burglaries. (See NOTE#1 below)

And, why did he do it?

According to the DFS announcement and consistent with everything we know to be true about PA contingency fees, it was…”in order to increase his commissions.”

Keep in mind, this is something Alvarez and far too many other public adjusters have done in spite of a Citizens fee limit of 10% of the difference between the original offer and the final payout. The same shenanigans occur in the private market where the cap is 10% or 20% of the total payout for regular and declared emergency claims respectively. Two separate situations requiring two separate contingency fee statutes.

Now, here’s where it gets scary…

Slightly over a month ago, public adjusters retained a prominent, well connected Tallahassee law firm (D’Alemberte and Palmer) to overturn both of Florida’s fee limitation statutes (Case No 2011-CA-842). If they succeed public adjusters will be able to charge pretty much whatever they want, for both Citizens and for private carriers–you know, like in New Jersey!

I peg their chances at about 50/50; roughly the same odds I gave on the challenge to the 48 hour solicitation ban which the PA’s overturned last year.  (See NOTE #2 below)

Prior to statutory fee restrictions Florida’s problems were not unlike those reported in New Jersey. Numerous legislative working groups and task forces found PA abuses to be significant enough to not only warrant fee limitations but, licensing, advertising and unfair business practice reforms as well.

Some say this is why the number of Florida PA’s have diminished in recent years.  Others say, without storms in Florida, they’ve trekked to New Orleans, and points north to “assist” the victims of Katrina and Sandy.

Point is, another percentage now comes prominently into play…it’s 100%! That’s how many claims public adjuster ads and advertorials at least imply require their attention…all of them.

Citizens public documents show that, for some perils, PA’s already file and handle nearly 80% of the claims. Even in the private market, depending on the peril and location of the risk, it’s often over 70%.

BEGGING THE QUESTIONS: What would the percentage of PA involvement be if the courts throw out any limitation on their fee’s? What would be the moral hazard for those like Roberto Alvarez?

Florida’s fragile property system couldn’t survive, in my opinion, making it incumbent on lawmakers to enact methods to limit PA compensation without the use of a contingency fee cap.

For many of the same reasons that Florida capped contingency percentages, some states prohibit public adjuster contingency fee’s altogether. Consistent with the press accounts above, I believe their statutes refer to them as…“against public policy”.

Anyway…if Florida’s contingency fee limitations are overturned, as I think they might be, someone better get real serious about implementing language limiting PA’s to a reasonable hourly fee based on the work performed and the hours it took to perform that work.

Anything else should be…bad public policy!

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NOTE #1: Anyone with information of suspected insurance fraud is asked to call 1-800-378-0445. Those who provide tips can remain anonymous. The Department of Financial Services to date has awarded almost $275,000 to more than 40 citizens as part of its Anti-Fraud Reward Program. The program rewards individuals up to $25,000 for information that directly leads to an arrest and conviction in an insurance fraud scheme.

NOTE #2: Florida public adjusters won a constitutional argument that Florida Statute 626.854(6) wrongly banned all solicitation for 48 hours in violation of the Florida Constitution. In The opinion the court rejected the DFS argument that the statute is ambiguous enough to result in an interpretation that it applies only to the time, place, and manner of commercial solicitation. “We hold that the statute unambiguously bans all solicitation for 48 hours and that this restriction on commercial speech violates Article I, § 4 of the Florida Constitution under the standards of Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980).”  For more see my blog titled: Public Adjusters–Free Speech & Paragraph (K).

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