The Florida Senate is working on a measure that would alter the way some home insurance claims are billed. And some in the repair and restoration industry worry it could put them out of business.
Imagine it’s the middle of the night, and a pipe bursts, and well, I’ll just let Sen. Dorothy Hukill (R-Port Orange) take it from there.
“The homeowner’s distraught, calls a plumber, who then recommends a water mitigation service, often times paying a referral fee, the company comes out, they demand that the homeowner sign some documents including an assignment of benefit.
That’s the sticking point: assignment of benefits, or AOBs. It’s a legal document that assigns payment of an insurance claim directly to the service provider. So in this case, the insurance company would cut a check directly to the water mitigation company rather than paying the homeowner who them pays the company. Hukill is sponsoring a measure in the Senate that would restrict the use of AOBs. Some argue the practice is leading to ballooning insurance claims, and in turn higher premiums for everyone.
“On a 1,500 square foot home, with assignment of benefits, it was typically around $10,000 to do the water extraction on the average loss,” Scott Johnson says, “But without assignment of benefits, and for 10 years, the company rarely paid a claim over $3,500, and never paid a claim within that ten years that was over $5,000.”
Johnson heads up the consulting firm Johnson Strategies. Now just to put a grain of salt with that, Johnson used to work in the insurance industry, and the information he received came from one person, in one company. What’s more, the insurance business model relies on minimizing claims payments. Several commenters say the real problem is insurance companies are deflating payouts. For instance, there’s Terry Perkins, a retired state of Florida employee.
“I was first offered $6,100 to repair the damage,” Perkins says. “I checked with several local contractors, several of them—they didn’t laugh at me, but it was like, you can’t get this work done for that amount. I ultimately settled for $32,000, and I can get the work done for that amount.”
So just to do the math, the insurance company’s initial offer was just over one-fifth of what they eventually settled on. In the eleven months Perkins haggled over payment, he says he spoke with 15 insurance representatives and was left to use a utility sink in his kitchen. Defenders of assignment of benefits say the average person isn’t equipped for that kind of negotiation, whereas the company doing the work, and routinely interacting with insurance adjusters, is.
Just before the matter went to debate, a man named Jeff Grant came forward saying he’d somehow been missed in public comment.
“A couple things, there are industry standards, there are ways to work around this issue,” Grant says, “and two I would invite everyone in this room to come to my office, I will come to your office, but I want to show you real life how this actually works.
So, I took him up on that.
Grant owns Bone Dry Restoration and Cleaning in Tallahassee. They’ve been operating for just over 10 years, and Grant has a very simple explanation for how assignments work.
“What an assignment of benefits is,” he says, “is just like you going to the doctor with your insurance. You see the doctor, you sign all the paper work.”
“Pretty much, I’m your house doctor,” Grant says with a chuckle.
And he says the assignment is important, because payment for work like his comes well after the fact.
“Most of the time they’re back together and living their lives—the client. And we haven’t been paid one dime,” Grant says. “And then they [the insurer] want to come and say, ‘Here, this is fifty cents on the dollar. Take that, or pound sand,’” he says.
But Grant says with an assignment of benefits he has recourse with the insurer, and if they can’t come to an agreement he’s able to take them to court.
Hukill says her bill doesn’t actually do away with assignment of benefits because it allows the policyholder to designate the contractor as a co-payee, essentially allowing payment to flow directly to the contractor. But there are two caveats—first, that payment is capped at $3,000, and the bill explicitly denies the assignment of negotiating rights to a contractor. So, if there’s a dispute over the cost of the work, somebody like Grant will have to sue the policy holder—something he doesn’t want to do.
He says if the bill passes, he’ll likely have to start demanding payment on completion, and he worries before long that would likely put him out of business.
