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AOB Abuse and Fraud Help to Drive the High Cost of Insurance

If you’ve purchased or renewed homeowners insurance lately, you know that premiums are skyrocketing. While there are several factors driving Florida’s insurance crisis, our high insurance prices are, in part, due to fraud and assignment of benefits abuse.

Let’s take a closer look at what’s happening.

What is Assignment of Benefits (AOB)?

Assignment of benefits (AOB) is a legal agreement between a policyholder and a third party in which the policyholder gives (“assigns”) some of his or her rights and benefits under the policy to that third party. Under certain circumstances, this works well, such as when preapproved health care service providers bill your health insurance company directly for covered benefits. However, in the world of homeowners (and auto insurance), AOB abuse has become rampant, adding more strain to an already stressed insurance market. Most AOB abuse claims stem from homeowners insurance (primarily related to roofing scams or water losses), PIP claims, and damaged windshields. This article will address AOB abuse related to homeowners insurance claims.

What does AOB abuse entail?

In Florida, two things are at play. First, unscrupulous companies are submitting inflated or fraudulent homeowners insurance claims. One common scenario involves roofing companies canvassing a neighborhood after a storm, offering “free roof replacement” after they look for damage that may or may not exist or be caused by that storm. In this and other situations, fraudulent contractors also may do unnecessary repairs, overcharge for repairs, or in some cases, charge for repairs they don’t make.

Second, when an insurance company balks at paying an inflated claim, the fraudulent contractors are hiring attorneys to file excessive lawsuits alleging breach of contract or bad faith. In some cases, lawsuits have been filed even before the insurance company has been notified of the claim!

As we noted in a previous article, “Florida has, by far, the largest number of lawsuits related to homeowners insurance claims. For instance, in 2019, only 8.15 percent of all homeowners claims in the U.S. were filed in Florida, but more than 76 percent of property claim lawsuits were filed here. And what’s worse: only eight percent of the fifteen billion dollars that property insurance companies paid out in claims costs between 2013 and 2020 went to consumers. Seventy-one percent went to attorneys!”

Of course, not every claim is inflated, nor is every lawsuit unwarranted. But Florida currently has an environment of abuse.

AOB abuse “acts like a tax”

Put plainly, even if you’ve never had an insurance claim, AOB abuse and fraud are costing you money. Insurance companies have no choice but to pass legal costs to defend AOB lawsuits as well as the costs of inflated claims to all insurance consumers. According to the Insurance Information Institute (iii.org), “…had legal costs tracked nationwide averages, the cumulative total savings for Florida homeowners insurers (and their policyholders) would have been nearly $1.6 billion.” This statistic only refers to legal costs themselves, not the amount of money paid out in inflated claims settlements. “AOB abuse acts like a tax on Florida consumers,” according to iii.org.

If you have a claim

If you have a homeowners insurance claim, contact your insurance company as soon as you can. Most have 24/7 claims service, either by phone or online. Insurance company representatives will be happy to walk you through the claims process. Don’t allow a contractor or water remediation company to contact your insurance company for you. You don’t need to sign an AOB to have your claim paid.

(For more information, see “Demolish Contractor Fraud.”)

L & M Insurance Group—your source for insurance

We hope this has helped you understand one of the major factors driving the skyrocketing costs of insurance in Florida. Please remember that reputable insurance companies, like the ones L & M Insurance Group represents, will be there for you if you have a claim. If you need a quote for personal auto, homeowners, renters, or business insurance, we partner with multiple insurance companies, and our agents are experts at finding the right match for your individual situation. Please call 813-672-4100 or click here to contact us online.

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Don’t Be the Victim of a Roofing Scam

Replacing a roof will likely be one of the larger expenses you’ll have as a Florida homeowner. And while you’re probably looking for ways to save money on that major expenditure, be aware that roofing scams are common, and could leave you out of pocket with a roof still in need of repair, or worse yet, on the hook for insurance fraud.

What are some of the most common roofing scams?

Roof scammers take advantage of homeowners by trying to convince them that they can get it done a lot cheaper—or even for nothing. They may do shoddy work, not complete the job, or simply take your money and disappear.

There are a couple of scenarios you should watch out for. One of the most common is for “storm chasers” to come through a neighborhood after a storm, talking to residents or leaving flyers offering to fix damaged roofs, sometimes “at no cost to homeowners.” How is that possible? They may tell you they’ll pay your insurance deductible, or have you sign a contract that includes an Assignment of Benefits (AOB) clause. AOB is an agreement that transfers an insurance claim’s rights or benefits of the policy to a third party (in this case, the roofing company)—that third party files the claim and collects the insurance payments. This sounds good in theory, but in reality has become a huge source of fraud. The costs associated with Assignment of Benefits abuse are a prime reason homeowners insurance is so expensive in Florida.

Another scam involves someone knocking on your door offering to do a free roof inspection. They often say they’re doing work in your neighborhood and will offer you a good deal.  Sometimes they even say they just happened to be driving by and noticed some damage on your roof! (If you think about it, how likely is that?) Of course, they will claim they found damage, possibly when there is no damage at all, or not enough to warrant replacing your entire roof. In some cases, scammers actually damage your roof themselves.

Other scams include lowball estimates or requiring a large down payment before starting work. While of course you want to be budget conscious, you may not want to go with the lowest estimate for a roof replacement. In the case of a roof, where quality work is especially important, lowest is not always best. It’s likely either the work will be poor, or they’ll come back in the middle of the job for more money because of “unforeseen” problems or increases in the cost of materials.

You should also avoid making a large down payment. The industry standard runs around 20 percent, so if a roofing company asks for a lot more, that’s a red flag.

How to protect yourself from roofing scams

Replacing your roof is a major investment, so how can you increase the odds that you’ll have a good experience?

First, be wary of unsolicited offers to do a roof inspection. There are many honest and legitimate roofing companies out there, but they probably won’t be going door to door to drum up business. If you know your roof needs to be inspected, repaired, or replaced, ask your friends and relatives for recommendations, or consult a home repair rating service such as Angie’s List or homeadvisor.com.

Before signing a contract, ask for local client references, and call them to see if they were satisfied with the work done. Check with the Better Business Bureau to see if there are any complaints about the roofing company.

Require a written proposal that includes a full description of the work to be done, start and finish dates, and a payment schedule. Make sure you have the roofing company’s business address, telephone number, and tax id number. Ask to see copies of their contractor’s liability insurance and worker’s compensation certificates, so that if one of their employees is injured while working on your roof, you will not be held liable.

Do NOT be pressured into signing a contract without doing your own research.

Do NOT sign any contract that contains an Assignment of Benefits clause without checking with your insurance company or L & M Insurance Group insurance agent first.

L & M Insurance Group is here to help

If a roofing company approaches you with a deal that sounds too good to be true, it probably is. Avoid roofing scams by getting recommendations from trusted sources, and don’t be afraid to take your time and ask plenty of questions. Please feel free to call your L & M Insurance Group agent at 813-672-4100 if you have questions about whether or not a roof repair or replacement will be covered under your homeowners insurance policy. You may also contact us online by clicking here.