Q. What is Assignment of Benefits?
A. An Assignment of Benefits is an agreement or contract that transfers the rights of an insurance policy to a contractor or other entity. This includes any cause of action that may result from a contractor’s incomplete work.
Q. How do contractors exploit AOB?
A. Here’s an example:
A cracked water pipe floods a home. The policyholder contacts a plumber to fix the leak. The plumber then refers the policyholder to a water extraction company. The water extraction company promises to take care of everything including billing the insurance company directly if the policyholder signs a work authorization form which includes AOB language. Most times, when this contract is signed, the policyholder is unaware of what they signed. The water extraction company begins the dry out process and removes areas of your home not damaged preventing the insurance company from properly inspecting damages. The water extraction company then bills the insurance company for an exorbitant amount of money. Most times, this amount is at least 2 to 3 times the actual cost of the water mitigation. Due to the AOB, the water extraction company can place a lien on the property or foreclose if the bill is not paid to their satisfaction by the insurance company.
Q. Who are the main abusers of AOB?
A. The biggest abusers are water extraction companies and roofers.
Q. What can policy holders do to prevent AOB fraud?
- The very FIRST thing you should do after experiencing a loss is to call your insurance company. The company can refer a qualified, licensed professional to help you mitigate damages and accurately evaluate your loss.
- Never sign a contract you haven’t read or don’t understand. Call your agent or insurance company if you need help or guidance.
- Ask all contractors if they utilize AOB and for proof of liability & workman’s compensation insurance.
Be cautious if the contractor:
- Shows up unsolicited offering you something for “free.” Often times, they promise to waive your deductible or get you a free roof or kitchen.
- Pressures you for a quick decision
- Isn’t local to you
- Asks for referrals for your family and friends in return for referral fees
You may have figured out that I like to watch the insurance news. I mean, I work for the company that produces my favorite insurance news (Insurance Journal) and I don’t say that just because I work here. I was an IJ reader before I became the Director of the Academy. Anyway, I’m really interested in the what laws are passed and how the different regulators operate. I’m actually a fan of the way that insurance regulation in the US has evolved over the last 300 years or so.
An item that is particularly interesting where I live in Florida is the topic of Assignments of Benefits. For those among us who aren’t dealing with this issue yet, let’s define what we’re talking about before we dig into the problem and maybe what Florida is trying to do to fix it.
An Assignment of Benefits is a simple document that allows someone, other than the insured to receive the money payable by an insurance policy. You signed one the first time you visited your doctor. It’s among the stack of paperwork when you first become their patient. It’s what allows them to send the bill to your health coverage without you having to pay the whole bill, submit it to the health coverage, and wait for the check to come from them. It makes the whole process of paying for medical needs faster and relatively less painful.
That’s not where the problem has come up. The problem is coming up when there has been a property loss. The insured does what he thinks is right, he contacts a contractor who comes out, examines the damage, creates an estimate, and then tells the insured that they can get started as soon as they sign this little form. What’s that form? You already know that it’s the assignment of benefits form. What happens next depends on the contractor. An ethical contractor works with the insurance company by providing estimates, letting the adjuster examine the property, makes the needed repairs and charges the insured their deductible amount. The home is repaired, and everyone is happy.
What seems to be happening more often is a little different. Somehow between the signing of the assignment of benefits and contact with the insurance company, either the contractor’s estimates become inflated or they simply contact their normal attorney, who files suit against the insurance company. In the end, the insurance company ends up paying more for the repair, the insured might end up having to write a check (or worse, end up with incomplete work), and homeowners’ rates for everyone go up.
I hear you asking if I have a solution to recommend, rather than just complaining about a problem in my state. That’s a fair question to ask. Right off, I don’t know what the solution is. I’ve read the text of the bill that’s before the Florida legislature and it looks like it might help. Do I think it’ll solve the problem? Not really. I believe that the vast majority of contractors are honest, hard working people who use assignments of benefits to make sure that they get paid for the work that they do. I also believe that most insureds are honest, too. I also believe that there are a few people that think that all they’re doing is taking money from insurance companies and no one gets hurt.
Let’s be clear about this, please. Whenever someone causes the costs of an insurance company to go up, like by inflating claims beyond what would be reasonable, those costs are not just absorbed by the insurance company. They aren’t even just absorbed by those new insuretech companies that promise transparency and giving back. Those costs are absorbed by consumers. In the end, the company will turn a profit somehow. They may not this year, but next year they will. By the way, the contractors (and others that work hard to get extra money out of insurance companies) are making their money, too. In the end, the only one that suffers is the consumer.
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