COIN Re: Loss adjustment expenses and assignment of benefits issues contribute to insurance premium sticker shock for Florida homeowners.
(Tampa, FL) February 19, 2019—According to a recent report from the global reinsurance intermediary firm JLT Re, claims stemming from Hurricane Irma, which caused widespread devastation in central Florida in September of 2017, now total 26% more than was originally estimated. Significant increases have also taken place with regard to claims from 2017 hurricanes Maria (25%) and Harvey (17%).1 “These late-breaking losses,” says COIN Re CEO E.W. “Ted” Blanch, “are collectively known in the trade as ‘loss creep.’ The factors contributing to it are not only affecting insurers and reinsurers, they are taking money out of the pockets of Florida homeowners.”
The JLT Re report, notes Blanch, attributes the increased hurricane losses partly to loss adjustment expenses, i.e., costs incurred in the processing of claims. Insurers who employ the services of a private investigator to verify, for example, whether a claimant’s front porch was actually swept away, incur loss adjustment expenses in the form of the private investigator’s fee and expenses.
Another contributing factor, says the report, is the growing volume of assignment-of-benefits (AOB) agreements, in which a policyholder transfers to a third party, usually a contractor, the right to collect an insurance claim as total or partial payment for the contractor’s repair work. Such arrangements lend themselves to the possibility of fraudulent behavior, particularly in Florida, due to two peculiarities of state law.
One is that no insurer consent is needed for an AOB. This limits the insurer’s ability to guard against cost inflation. The second is the one-way attorney’s fee provision; 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. If the insurer prevails, however, plaintiff owes the insurer nothing.1
The law—unique to Florida—has encouraged a flood of litigation. where there were approximately 1,300 AOB lawsuits in Florida in 2000, there were more than 79,000 in 2013 and nearly 135,000 through November 9 of 2018. According to the Insurance Information Institute, AOB abuse in Florida acts as a “hidden tax” on consumers, helping drive up already very high insurance premiums.2 The Florida insurance market, in fact, according to data research firm Value Penguin, now ranks number one in the nation in terms of homeowners insurance costs.3 Rate increases are most pronounced in storm-affected areas, along with areas of rampant non-weather AOB abuse.
“We’ve been seeing this AOB abuse in Florida for several years now,” says Blanch, “and legislative action on this issue is long overdue.” Beyond that, however, both loss adjustment and AOB expenses will continue to lead to adverse rate changes unless something is done. “At COIN Re, we hope to slow down the acceleration of rate increases to consumers by lowering reinsurance costs to our primary insurer clients,” says Blanch.
About COIN Re:
COIN Re was founded in 2018 under the leadership of E.W. “Ted” Blanch. As an innovator spanning decades, after joining E.W. Blanch & Co. in 1958 he became CEO in 1977 and held the position until 2000. The company was sold in 2001. He then formed Ted Blanch & Associates, a consultancy to the reinsurance industry.
COIN Re believes in changing the status quo. Catastrophe reinsurance market economics have been tipped in favor of reinsurers, and client/broker interests have been misaligned, ultimately hurting the end user—the consumer. As serial innovators in the market, COIN Re’s principals are aligning client/broker interests by giving insurance companies significant ownership in COIN Re, resulting in market economics tipping back to ceding companies with resultant improved reinsurance program pricing, lowered frictional costs and revenue distribution and equity value accumulation back to the insurance companies—and by doing so, potentially improve property insurance premiums for consumers.
Joining him as senior officers of COIN Re are President−Broking Michael W. Cashman, CFO Richard R. Allen, Executive Vice President Andy L. Crichton, and Vice President Kevin A. Mora. The company is headquartered in Tampa, Florida. Visit www.coinreinsurance.com.
- Dalton, Rachel, “Irma loss creep hits 26%: JLT Re,” Insurance Insider, January 24, 2019.
- Wood, Charlie, “Florida’s 135,000 AOB lawsuits in 2018 fueling a re/insurance crisis,” Reinsurance News, December 13, 2018.
- Bakkalapulo, Maria, “After natural disasters, Florida residents have fewer options for insurance coverage,” Marketplace, January 30, 2019.
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Karla Jo Helms