Many of us remember the George Clooney movie where three storm fronts converged off the coast of New England to create the “Perfect Storm“. There is an insurance version of the Perfect Storm brewing in the homeowner insurance marketplace. Like in the movie, several storms are converging on homeowners simultaneously, and rates are expected to increase. The insurance ratings company, AM Best, reports that, beginning June 1, many home insurance companies will increase rates 15 to 20 percent. Other home insurance companies are in such poor financial condition that they are under direct supervision of the Office of Insurance Regulation.
You may be asking the same question State Senator Jeff Brandles recently asked recently, “Why did my homeowner insurance premium increase 26 percent?”
Reason #1: Assignment of Benefits (AOB) Fraud
AOB is a scheme where unscrupulous water mitigation or roofing contractors get homeowners to assign the proceeds of the claim to them. The contractor then inflates the work estimate. When the insurance company refuses to pay the inflated estimate, the unscrupulous contractor sues the insurance company. Unfortunately, the innocent homeowner is caught in the middle and the insurance company is forced to incur high legal fees to defend. When the cost of claims increase due to fraud, premiums for all of us inevitably will increase.
Reason #2: Hurricanes that won’t go away
Home insurance companies are still receiving new claims from Hurricane Irma in 2017 and Michael in 2018. You may be thinking, why would a homeowner wait three years to report storm damage? They wouldn’t under normal circumstances, but these claims are not genuine. These claims are designed to get the insurance company into court where the plaintiff attorney forces the insurance company to pay attorney fees inflated by 250%. Unbelievably, this is legal.
Insurance companies, of course, do not print money, they must pay these fraudulent claims from premium received from regular folks like us. When fraudulent claims increase, our premiums increase. We will see some increases in north Florida beginning June 1, but we do not expect the double digit increases that will be broadly applied in south Florida.