Courtesy of Insurance Business Magazine
The assignment of benefits (AOB) is standard practice in the US insurance industry. AOB is a contract in which a policyholder grants a third party – such as a medical provider, an auto repair shop owner, or a contractor – permission to bill an insurance company directly for services rendered. While AOB is very convenient for policyholders, it has become quite the headache for insurance companies thanks to widespread, systematic AOB abuse.
In the state of Florida, abuse of AOBs has fuelled an insurance crisis, according to the Insurance Information Institute (III). The III states there were roughly 1,300 AOB lawsuits in Florida in the year 2000. Just three years later, the annual number shot up to 79,000, and by 2018 there were roughly 135,000 AOB lawsuits through November – a staggering 70% increase in just 15 years.
“Abuse of AOBs in Florida has evolved over the past decade,” said James Lynch, chief actuary and vice president of research and education at the III. “It started primarily with no-fault auto insurance claims, but over the past few years it has spread over to homeowners’ insurance and more recently into auto physical damage claims, particularly involving damaged glass.
“I think insurers are probably most concerned with regards to AOB abuse in homeowners’ insurance. Most typical homeowners’ insurance companies will cover water damage claims. If the piping in your home suddenly springs a leak, you, as an insured, have an obligation to get that leak fixed as quickly as possible. You call up a contractor who asks you to sign an AOB. Some contractors might then be abusing that AOB by doing a poor job or an overly expensive job and then billing the insurance company an excessive amount.”
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