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US Property Treaty Reinsurance,XL Catlin

The Atlantic hurricane season is now upon us and with it the plethora of predictions and forecasts this year stating there will be average or above average storm activity.​What this means for homeowners in US coastal states like Florida is unknown. Right now, it has been a record 11 years since a hurricane made landfall in Florida.

And while none of us can tell what will happen this summer, the lack of tropical cyclone activity has led, in part, to an upsurge in what appears to be fraudulent insurance claims.

In a rising curve since 2012, seemingly unscrupulous lawyers and contractors seeking extra income have been cashing in and misusing certain provisions associated with insurance policies called Assignment of Benefits (AOB).  The AOB provision, as the name implies, allows an insured to assign a claim payment from the insurer directly to a third party, such as a direct payment to a doctor in the case of a healthcare policy, or direct payment to a contractor in the case of a homeowner policy.  

However, in the case of homeowner policies, AOB lawsuits skyrocketed nearly 100% between 2005 and 2014, during the no-landfall hurricane seasons post-hurricane Wilma; and are said to have cost insurance companies millions of dollars. (various reports including ABC

Unable to get income from storm damaged homes and businesses, these legal and contract firms are turning to apparent scams to make a buck or two. And the real losers are turning out to be homeowners.

This apparent fraud is happening a great deal in water escape claims against homeowners’ policies and South Florida is a particular hot spot for the scam.

How is this happening?

A highly litigious group of law firms as well as certain types of contractors – many of them unlicensed water extractors – have been taking advantage of the AOB provision in homeowners’ insurance policies. In many cases, contractors are inflating the cost of repair work and suing insurance companies if a claim is denied or not paid in full. It has even gone so far that law firms in Florida have been passing out American Express-type cards, complete with a thumb-drive, to help contractors to obtain an Assignment of Benefits in water damage repairs.

Policyholders often don’t understand what they are signing over and they are often unaware that a repair company can sue their insurer if the insurer denies the contractor’s claim.

Far from being a ‘victimless’ scam against a ‘faceless’ company, it is policyholders who pay the price for the AOB abuse.  This happens both indirectly, through the resultant rise in insurance rates, but also directly, when they find they are liable for unexpected legal costs.

New legislation

New laws to stop this misuse will be widely welcomed by US property insurers and by policyholders, who regularly end up out of pocket through the abuse of arguably outdated policy wordings. The new laws are expected to come into effect next year.

Why does AOB exist?

AOB was introduced with the purpose of protecting the insured and allowing vendors to get paid promptly by home insurers for performing emergency repairs without the insurance policyholder having to get directly involved in the payment.


Far from being a ‘victimless’ scam against a ‘faceless’ company, it is policyholders who pay the price for the AOB abuse.

But over the years, its misuse has proliferated to the point where the authorities now see fit to legislate.

However, the best estimate for any new laws coming into force is 2017, leaving plenty of time for further abuse of the policies. In the meantime, policyholders can protect themselves from the risk of unnecessary cost and stress by being aware of the potential risks involved with signing over an AOB to a third party.

Homeowner check list:1. Don’t sign up to door-to-door salesmen asking if you have any water leaks or insurance

2. Only use recommended and well-established contractors

3. Always check the policy wording on your insurance document to see if you are covered for damage. If in doubt, call your insurance company

What next?

As reinsurers, we have been here before. Exaggerated, even sham claims have proliferated in a particular area as a result of a hard campaign by unscrupulous legal firms and contractors.

We are always on the look-out for the next “big thing” in these scams. Right now we are keeping a watchful eye on possible fraudulent claims on roof structures. Many roofs in Florida are about 10 years old now – and due for replacement. We are anticipating a rise in claims for roofs should there be a storm as contractors, lawyers and house owners look to find a way to replace these structures.

Always remember…

Insurance is a process of indemnification rather than a maintenance policy and be wary of people over-promising or who want to isolate the insurer out of the process. It’s important that any claim that is filed is done so on the basis of utmost good faith.

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Global Asset Protection Services, LLC, and its affiliates (“AXA XL Risk Consulting”) provides risk assessment reports and other loss prevention services, as requested. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. AXA XL Risk. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any publication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, AXA XL Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with this publication, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.

US- and Canada-Issued Insurance Policies

In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
US domiciled insurance policies can be written by the following AXA XL surplus lines insurers: XL Catlin Insurance Company UK Limited, Syndicates managed by Catlin Underwriting Agencies Limited and Indian Harbor Insurance Company. Enquires from US residents should be directed to a local insurance agent or broker permitted to write business in the relevant state.