Air Date: 4-8-2016| Episode: 409
When it comes to homeowner insurance issues Florida is often in the spotlight. Paul Handerhan serves as Vice President of Public Policy for the Florida Association for Insurance Reform…
When it comes to homeowner insurance issues Florida is often in the spotlight. Paul Handerhan serves as Vice President of Public Policy for the Florida Association for Insurance Reform. FAIR is a nonprofit association that works with policy makers to bring balanced solutions to the difficult Florida property insurance market. As the association’s founder, FAIR has grown from a start-up consumer group with a few dozen members to a powerful force for balanced insurance reforms. FAIR works to reduce property insurance rates by reducing risk, while ensuring that the interests of insurance consumers are protected. The FAIR policy model is to consult with all stakeholders to find balanced solutions with support across the political spectrum. In addition to its expansive legislative reform agenda, FAIR is the driving force behind bringing PACE (Property Assessed Clean Energy) programs to Florida, which has a PACE statute that allows for wind mitigation property improvements in addition to renewable and sustainable energy improvements.
Risk of Uncertainty
Paul Handerhan is a public adjuster based in Florida. In addition to his work as a PA, Paul serves as Vice President of Public Policy for the Florida Association for Insurance Reform. FAIR is a nonprofit association that works with policy makers to bring balanced solutions to the difficult Florida property insurance market.
Nuggets mined from the show:
Z-Man: Your profession is public adjusting, what is the premise behind public adjusters?
Paul: Public adjusting started 100 years ago in the northeast and has slowly spread across country. PAs are retained for two primary reasons: 1. handling their claim doesn’t make sense for busy working professionals so they hire a pro to do it and are happy to pay a fee for the service. 2.Clients who have gone through claim process and weren’t satisfied and hire a PA to advocate their position.
Z-Man: Follow up question: Is there a difference between a policyholder hiring a PA or an attorney to handle their claim?
Paul: In FL attorneys can act as PA’s. Most attorneys don’t want to measure, inspect, perform the other investigatory work and prepare a damage assessment. Attorney’s commonly use the work product of PAs in court to settle dispute.
Z-Man: What is the Florida Association for Insurance Reform (FAIR), why and when was it formed?
Paul: The shortage of adjusters followingstorms and hurricanes and a high frequency of claims caused a one-three monthdelay for adjusters to inspect losses. FLlicensing requirements were streamlined into a 40 hour class. While done to primarily help insurers, a swell of wannabe PAs jumped in increasing the number of PAs from 1K-4K in one year. Historically PAs had years of experience working through the claims process with insurance companies. The unethical behavior of the newbies, both unintentional and intentional was disruptive andhad a negative impact on the industry.
The FL Association of Public Insurance Adjusters (FAPIA) got involved and went to Tallahassee to get involved in drafting public policy. They found different trades groups representing different market segments, each seeking what was best for their group (insurers, contractors, attorneys). Looking out for their group’s own best interests led to overstepping into other industries and fighting among groups. Typically there were winners and losers, zero sum politics. Losers would want and work towards changing the laws. The big risk in FL isn’t wind or hurricanes, its uncertainty. With an unlimited number of stake holders seated at the table and all voices heard, resultingin long lasting public policies (win/win) and putting forth moderate public policy.
Z-Man: Who are the beneficiaries of FAIR’s advocacy?
Paul: The true beneficiaries are FL policyholders. Industry experts are sought to work with FAIR to develop the best policy to serve industry, benefit the marketplace and the consumer.
Z-Man: Statistically, does Florida have more water damage claims per capita or more costly claims per square foot than other states?
Paul: I don’t have quantifiable statistics. Why do we have water damage cases? Accidental discharge from plumbing, heating, AC systems are the most common losses.The highest frequency of losses occur in older homes. Miami and Dade counties have older housing stock, many 40-50 old homes with failing materials at the end of their life span. Polybutylene water piping defects caused many claims.FL is similar to rest of US
Z-Man: What is the story with Citizens Insurance?
Paul: Citizens Insurance started out as Florida Joint Underwriters Association after Hurricane Andrew as the insurer of last resort. When 11 admitted companies went insolvent, other carriers felt the risk was too high and exited the market. There was no option but for state to create Citizens and the Hurricane Cat Fund because it was completely unacceptable in banking and real estate for homeowners not to be able to get insurance. This need spikedthe growth of Citizens up to a high of 1.4 million policy holders. It’s good that FL has a carrier of last resort. A safety net is needed as because the admitted market will never accept all of the needed policies. Citizens shouldn’t be the largest insurance company in FL. Citizens can only glide path 10% increases per year even if rate increase is financially unsound. As a quasigovernment insurance company with tax benefits Citizens can operate at a loss. Citizens has an unfair competitive advantage in which the private market can’t compete. There is a major push to depopulate Citizen’s policies and shift them to admitted carriers.
Z-Man: Is Citizens a poor person’s insurance company?
Paul: Citizens has policyholders across all economic lines.100% of coastal risks went to Citizens. Properties that are old, in poor condition and would be abnormally costly to insure also went to Citizens.
Z-Man: From your vantage points as both a PA and insurance advocate what concerns do you have about Citizens policies?
Paul: A difficult question a walking balancing act, FAIR is a consumer organization, so obtaining adequate coverage and getting losses paid is important. A challenge is how to make admitted carriers more attractive to consumers? WhenCitizens is cheaper and offers the same coverage people gravitate there. By reducing Citizens’ coverages and making the private market more attractive. Policyholders don’t understand coverage and the insurance product they are buying and may change carriers to save money. Good insurance agents educating consumers about the different choices. The FL admitted insurance market is now competitive and robust.
Z-Man: What if any business practices and/or policy language of Citizens Insurance are you concerned about?
Paul: Citizens put forward policy changes some reasonable some dramatic impacts. In July 2016, an emergency measure will go into effect placing a not to exceed limit of emergency response costs to 3K or 1% of coverage a without approval from Citizens. What does the emergency responder do now? What if they don’t know what the process is for approval? What will happen, will they pull equipment, stop work at a preset limit, what about additional damage caused by the work stoppage?
Z-Man: What is the Assignment of Benefits? How old is it? In what other states is the AOB used?
Paul: The AOB is 100 years old? Speaking anecdotally it’s probably used in all states. Abundant case law supporting the assignment of claims. For example: when you go to a doctor, you don’t typically pay for services. You show him your card or policy number, the Doctor agrees to treat you and bill your insurance carrier and you sign papers allowing the doctor to collect the benefit for providing the services.
Z-Man: Isn’t it true that, prior to assignments of benefits becoming common in homeowner insurance claims, a water restoration contractor would come out and get the policyholder to sign a contract, including a notice of lien saying the insured was responsible to pay for their services? The insured would submit bills and the insurance company or their 3rd party administrator could “determine” they were too high and then leave the insured holding the bag and the need for the contractor to sue property owner or more likely reduce the bill?
Paul: Going back approximately 5 years, general contractors, restoration contractors, subcontractors, have been using the same fee collection model as doctors. In theory it sounds like a very good tool; the homeowner doesn’t need to come out of pocket and the contractor bills carrier directly. The medical profession has been doing this for 50 years and there are rules and regulations governing doctors. This is a new area for restoration and there aren’t many controls on how the process works.
Z-Man: What are your concerns about AOBs in FL?
Paul: Just like the unintended consequences which occurred when a rash of new PAs entered the FL marketplace, there are unintended consequences with the use of AOBs in FL. One problem is that the AOBs aren’t apportioned. Typically when an AOB was signed they would take 100% of claim assignment. A home suffers hurricane to the roof resulting in water damage and mold growth inside. A roofer has an AOB signed and then owns 100% of the claim. He does what he promised to do, he puts on a new roof, submits a bill to the insurance company who pays the bill and asks for a release. The roofer signs the release, the repairs to the interior of the property, are uncompleted. The homeowner is told that they assigned claim to the roofer and that the claim was settled.“Just sign and initial here and we will handle it.” Some contractors wouldn’t fully explain to the homeowner the implications of the document that they were signing. When the homeowner knows what they are doing and wants to sign that’s OK, restorers should restorer should disclose to policyholder what they are signing. The AOB should be limited to the work the contractor is providing.
Z-Man: Horror stories are common about restoration contractors responding after hours, weekends and holidays, doing good work, having a satisfied customer and the insurance company using 3rd party to reduce the bill. I see the AOB as the restorer’s defense mechanism against insurance companies who use 3rd parties to cut legitimate invoices?
Paul: Not all restoration companies and insurance companies are the same. OK to use when transparent and ethical, engage consumers so they know what they are doing.
The insurance company receives a bill and an AOB. The insurance company never had the opportunity to inspect the property and there are no photos or other documentation
When documented, prompt notice given to the carrier, moisture maps & moisture readings provided along with an equipment inventory and photosof the equipment in use; the contractorcan prove what was done and will have an easier time getting paid. If insurance company won’t pay a well-documented invoice, the contractor can use the legal system to force them to do the right thing. Restorers don’t want to litigate and wait for money, they want paid promptly.
Z-Man: As a PA how you use the AOB?
Paul; My assignment isn’t for the claim in general or all of the claim benefits, it’s only for the percentage I would charge for service I’m providing.My job is to handle the claims process so you can continue to do what you do, make sure the process is handled and you are 100% indemnified and don’t not promise anything more. As the policyholder you’ll have certain responsibilities, to pay deductible andpay the fee. If I do my job perfectly on a $10,000 claim with a $1,000 and a 10% fee you’ll get a check for $8000. You will need to subsidize, you agreed to the deductible when you bought the policy and you agreed to my fee when you signed my agreement. Customers want this exactly. They aren’t looking to be enriched. Sometimes policyholders have a dispute and the process is the same. Strive for that level of transparency. Policyholder understands getting into, understands expectations.
Pete: What is the relationship between the FAPIA and NAPIA?
Paul: NAPIA was one of the first associations to advocate for PAs. FAPIA was founded in 1992 by FL based NAPIA members practicing in FL. There are close relationships with FAPIA and other state associations.
[Growing up and working in the restoration industry in the northeast and west coast, Pete is familiar with how PAs operate in the northeast where they handle all types and sizes of losses and on the west coast where they primarily handle commercial claims.]
Pete: The State of CA recently upheld litigation on the legality of an AOB; this case will set precedent and likely have national implications.
Pete: AOB issues are problematic and struck a chord with me on how your industry raised the bar when the number PAs in FL swelled from 1Kto 4K. The restoration industry also needs to self-regulate. When the offending party is licensed by the state and breaks the law there is recourse. The problem is how do you self-regulate when contactors do unethical things that don’t break the law? Please comment.
Paul: Everyone’s ethical standard is different, so ethical behavior is subjective. When bad actors are confronted about their actions the initial reaction is to be defensive shift blame.Your industry must realize what it can and can’t control. It can’t control the actions of insurance companies or other stakeholders. The first step is to put cards on table, unethical actions are occurring, not everyone is doing it, but those who are giving our industry a bad reputation. Go on a mission to educate people to stop doing unethical things. It’s never easy to hear embarrassing things about your industry. Instead of being defensive, own up to it. We created a Code of Ethics that’s stronger than what is required. We put together an ethics committee. We spread the word that if you see someone from our industry doing something unethical report it to us.We found that the perpetrators weren’t necessarily bad people they didn’t know any better and didn’t have the benefit of 10-20 years of industry experience.
Paul: In FL I see new companies (restorers, mold labs, inspectors)opening up all around because of the demand.
I’m willing to help develop outreach toeducate. The restoration industry is critical to both insurers and policyholders. It would be a shame if bad apples weren’t able to be reached and educated. Encourage them to become members of RIA to become educated and move forward. The best people to address abuses is the restoration industry itself not the insurance industry.
Z-Man: I’m a less government person, I don’t see a good government solution. I like Pauls’ stakeholder approach.
Pete’s final comment: There are consumer protection laws in other states, cooling-off periods and waivers of lien, so restorers don’t go in and do work they won’t be paid for.
Paul’s final comment: That Citizens legislation with the limit on emergency response will be very problematic. Your industry should get involved.
You’re invited to an upcoming conference on April 28thin Tampa, FL. A macro public policy workshop on how to strengthen FL insurance marketplace for the benefit of consumers. Learn more at:
Today’s music: “There’s A Leak in This Old Building” by Angel City Chorale YouTube
Z-Man signing off
Florida lawmakers are currently weighing two bills that would address the abuse of the assignment of benefits provision, name them?
House Bill 1097 and Senate Bill 596