Financial analysis firm Demotech has underlined the importance of adequate loss and loss adjustment expense reserves for Floridian insurers as a challenging claims environment continues across the state.
The quarterly review points to a recent Assignment of Benefits (AOB) case in which an insured’s right to assign policy benefits to two service providers was upheld by the District Court of Appeal of Florida.
The decision has the potential to set a new precedent and could further exacerbate AOB’s abuse-potential across the state.
The AOB issue can occur when an insured passes over the right to act as the insured to another entity, such as a lawyer or a contractor, which in turn can result in lawyers demanding increased claims for smaller storms, for example, ultimately leading to outsized losses.
In Florida, misuse of AOB has been especially prevalent as a result of water claims following hurricanes.
Domotech argues that unless current claims procedures, practices, and protocols result in sufficient reserve development in previously submitted financial statements, it is unlikely that those same claims procedures, practices, and protocols can respond to a Florida’s future claim settlement environment.
As such, Demotech has said it will be contacting all rated carriers operating in Florida to discuss their loss and loss adjustment expense reserve position and share its perspective. This process is expected to be completed by July 31.
