Corrupt misuse of “assignment of benefits” (AOB) practices in Florida is driving up expenses, straining the insurance market and leading to significant rate increases, according to an AM Best report.

An AOB is a document signed by the insured that gives builders the right to bill insurers directly.

The report reveals that years of AOB misuse by contractors is leading to reinsurers reducing capacity for Florida-focused insurers, and depressing insurers’ operating performance.

Some contractors have solicited the transfer of rights from homeowners, then inflated repair costs for flood damage. Even if insurers sue, contractors benefit from the one-way attorney fee rule, which makes insurers bear both parties’ litigation costs, even if the insurer's claim is found to be partially valid.  

There has been about a 42% increase in insurance losses since 2015, with hurricane-hit southeast Florida the worst affected, according to the state’s Office of Insurance Regulation.

The number of AOB lawsuits filed by property owners increased from 2852 to 19,253 in five years to last year

Insurers are now shifting distribution away from areas prone to AOB issues, reducing the availability of insurance, the ratings agency says.

Legislation has taken effect this month to dissuade contractors from unjustly benefitting from AOBs. Insurers can now offer policies that restrict AOB use wholly or in part.

The reform establishes the responsibility of contractors to co-operate with insurers’ claims investigations, provide up-to-date estimates about the scope of work, submit to examinations under oath and take part in alternative dispute resolution. It also addresses the misuse of the one-way attorney fee rule.

However, many claims remain in process and may take a considerable time to settle, leaving rates at an elevated level until they are closed, AM Best says.