jump to main menu jump to subject menu jump to content jump to footer

Insurance Consumer Advocate

Sha'Ron James

Contact Us
Mailing: 200 East Gaines St.
Tallahassee, FL 32399-0308

For Consumer Assistance:
Contact the Division of
Consumer Services within the
Department of Financial Services

Online at
Consumer Services
Toll-free in Florida
Out of State
(850) 413-3089
(850) 413-3033

Public Records Requests

Follow the ICA on Twitter

design placeholder only

Assignment-of-benefits urgency builds as March approaches


Date: February 24, 2017
Source: S&P Global


Demotech's Feb. 6 warning that some of the Florida residential property insurers it rates face potential downgrades appears to have dramatically raised the stakes in an ongoing debate over potential assignment-of-benefits reforms.

As several publicly traded Florida property insurers offered a range of commentary regarding the impact of litigated, non-weather-related water damage claims with an AOB on their businesses, Sen. Bill Nelson, D-Fla., urged the U.S. Treasury's Office of Federal Insurance to "take any and all necessary steps to help stabilize Florida's property insurance market and avoid ... a disaster" that widespread Demotech downgrades could trigger. The urgency of Nelson's letter stems from his worry that Demotech downgrades "could put thousands of Florida homeowners at risk of defaulting on their home loans" as he said the government-sponsored enterprises require borrowers to purchase coverage from companies with financial strength ratings of A or higher.

"Regardless of the reason, the effects of such a downgrade could be devastating," Nelson wrote in a copy of the letter obtained by The Palm Beach Post."If thousands of Florida homeowners are thrown into default through no fault of their own, it could have a disastrous effect on the state's economy and financial system."

Demotech, in a statement provided to the newspaper, argued that its rating of one level below A gets assigned to "financially stable" companies that are "well above average," and that it has been communicating with the GSEs and the errors-and-omissions insurers of insurance agents on the topic.

Regardless of whether or not downgrades occur, the resolution of what Citizens Property Insurance Corp. President and CEO Barry Gilway has long characterized as the assignment-of-benefits "crisis" remains a pressing need for the industry, and public support may be building.

The Orlando Sentinel and Tampa Bay Times urged Florida legislators to pursue reforms in separate editorials published in recent days. Three Florida-focused property insurers offered varying perspectives on assignment-of-benefits-related litigation trends during recent fourth-quarter 2016 earnings conference calls. HCI Group, Inc. said the assignment-of-benefits issue and related litigation served as a "major driver" of its decision to strengthen loss reserves during 2016. But Chairman and CEO Paresh Patel said during a Feb. 21 conference call that he believes there has been "stabilization" in the amount of activity, albeit at "extremely elevated levels."

The company generally sees about 35 lawsuits for every 100 claims it receives on homeowners business written on HO-3 policy forms in the counties of Miami-Dade and Broward, which are generally regarded as Ground Zero for litigated water claims. While Patel hypothesized that carriers that have recently expanded into the two south Florida counties might be seeing an uptick in litigated claims, he said HCI has been operating in the region for most of its existence and has actually begun to experience a decline in the absolute number of claims it is receiving.

"This means that we will eventually see a decrease in lawsuits and everything else," he said. "It is too early to tell yet, but the actions we have taken [make] us very optimistic that at a minimum, the [assignment-of-benefits] problem for us has stabilized.

At a maximum, it may actually go into decline because of some of the underwriting actions that we [have] taken." Universal Insurance Holdings Inc. Chairman and CEO Sean Downes said during a Feb. 22 call that his company saw "a little bit of an uptick" in the frequency of assignment-of-benefits-related claims during 2016, but added that severity has dropped. Universal's strategy to employ a "fast track team" in its claims-handling operation has helped mitigate the potential for the likes of plaintiffs' attorneys, contractors and public adjusters to intervene, he added. United Insurance Holdings Corp. President and CEO John Forney, meanwhile, described the situation during a Feb. 21 call as being "pretty robust right now in terms of that litigation-for-profit ... cottage industry that's developed in Florida, and they're going full steam ahead," including in some cases through multiple lawsuits from different parties on the same claim.

"I don't know that you can say there is a decline in it overall," he said, adding that United is "trying to fight the good fight." March is shaping up as a critical month for the industry.

Two other Florida-focused property companies, Federated National Holding Co. and Heritage Insurance Holdings Inc., are scheduled to report their fourth-quarter results and statutory filings for Citizens and private carriers will be released. The Florida House and Senate begin their legislative sessions March 7. And, perhaps most critically, Demotech said it intends to make any ratings revisions in March.