Coming to a Roof Near You
As you know, the water extraction assignment of benefits (AOB) issue has had the insurance industry’s center stage for the last couple of months. As a result, we have not heard that much about another trending type of claim. This other trending claim has many striking similarities to the water extraction AOB claims:
- exponential increases in reported claims;
- increasing claim payouts per claim; and
- a industry of contractors, adjusters, and attorneys with growing expertise in litigating these claims.
Before you know it, this type of claim – hail damage claims – will be the center of attention for the insurance industry. The claims keep pouring in (even if the rainwater doesn’t), and no one has dissected the vast array of problems and solutions.
The Four Problems with Hail Claims
- Suspicious Increases: Insurers are seeing drastic increases in hail claims without a corresponding increase in hail events;
- An Offer that Can’t Be Refused: Insurers are concerned that roofers are driving these claims with a sales strategy that homeowners cannot refuse – roofers offer to provide homeowners with new roofs, and homeowners will only need to pay their deductible;
- More Than Meets the Eye: Insurers are troubled when homeowners and their roofers request coverage to replace the entire roof despite an apparent lack of significant damage;
- An Uneven Playing Field: Insurers are worried that consumer-friendly laws, such as prevailing party attorney’s fees, make the playing field uneven.
Are these concerns true?
Florida Homeowners Insurance Claims and Litigation Handbook
Florida Homeowners Insurance Claims and Litigation Handbook and Litigation Data Reports:
Before we go on, if you are in the Florida homeowners insurance claims industry and are looking for a guide with the key cases, strategies, laws, attorneys, and adjusters, or if you’re looking for Florida litigation data reports, please visit this page to learn more about our Florida Homeowners Insurance Claims and Litigation Handbook.
Problem #1: Suspicious Increases: Insurers argue that they are seeing drastic increases in hail claims without a corresponding increase in hail events.
True or False? Probably true, but there is not enough public Florida claims data to be sure.
The Data on Hail Events
According to the NOAA National Climactic Data Center, reported hail events in Florida have been up and down over the years:
Looking at this data, Florida insurers should not be receiving exponentially increasing amounts of hail damage claims, right? Think again.
The Data on Hail Claims
In “AOBs & Roofers?!” Scott Johnson provides the only publicly available Florida data that I am aware of.
Here’s what I learned from one insurer only a few days ago.
For five years, from 2007 to 2012, hail claims were barely on its radar, accounting for a mere 1-2% of total claim volume. Enter the “roving roofers” armed with “insider secrets”. In 2013 hail claims rocketed 700% to over 7.9% of its total claim volume.
Last year the same insurer had an astounding 11.24% of its total claim volume from hail. In other words—for five years (2007-2012) it paid $1.8m in hail claims. Then, in just two years (2013 and 2014) it spent $8.3 million!
Without data, insurers have nothing but their opinions. Although Mr. Johnson’s data is limited, other Florida insurers would probably show similar statistics depending on the counties they do business in. If we in the insurance industry go by our experience, then we know there has been a substantial increase in the amount of hail claims over the years, without any corresponding increase in hail events.
This is why insurers are suspicious. Should they be? Probably, but without more data, it’s not a very convincing argument yet.
Problem #2: An Offer that Cannot Be Refused: Insurers are concerned that roofers are driving these claims with a sales strategy that homeowners cannot refuse – roofers offer to provide homeowners with new roofs, and homeowners will only need to pay their deductible.
True or False? It’s safe to say this problem is true.
I’ll save your attention span on this one and just insert some promotional materials I have been provided. Please keep in mind that I have no personal knowledge who created these advertisements or whether they were ever distributed. If you have any reason to dispute that these are not advertisements used by the companies described, please let me know.
As you can see, these are very compelling sales strategies that homeowners will have a hard time refusing. We could go into detail about how these advertisements lead to easy sales … which lead to more easy sales … but we trust that you can see how quickly these businesses can grow.
On a roofer-by-roofer basis, your SIU department can identify any fraud by talking to the neighborhood and researching weather reports.
Maybe these advertisements are legal, maybe they are not.
Are they a genuine problem for insurers? Without question, the answer is yes.
Problem #3: More Than Meets the Eye: Insurers are troubled when homeowners and their roofers request coverage to replace the entire roof despite an apparent lack of significant damage.
True or False? Probably true, but expensive to prove!
If insurance company money was not available, no one would suggest that replacing the entire roof of a perfectly performing roof is a wise decision. But when an insurance company may be responsible, roofers and homeowners forget about economics.
What can insurers do? They can take a stand against the roofer, pay their attorneys hundreds of thousands of dollars, take the cases to trial, and hope that randomly selected jurors will understand their position.
So why don’t insurers simply fight these cases in Court?
In our next problem, we talk about why insurers feel there is an uneven playing field when these hail damage claims turn into court cases.
Problem #4: An Uneven Playing Field: Insurers are worried that consumer-friendly laws, such as prevailing party attorney’s fees, make the playing field uneven.
True or False? True.
Florida lawyers and the legislature have made it very difficult for insurers to find justice in the courts. We don’t want to bore you with a complete dissertation on the Florida court and legislative systems, so we will focus on four reasons why insurers are right – the playing field is not level in hail damage claims.
Juries are Too Late to the Party
First, insurers do not even get to know who decides the case – the jury – until after they have to pay their lawyers four to five times what it would cost to settle the case. (As you can see, this problem applies to all cases, not just hail claims). By the time insurers realize that their jury has no roofing experience, it’s too late for them to fold their cards. Thus, this legal process is set up to have all of the lawyers do hundreds of hours of work, charge hundreds of thousands of dollars, and then the insurers get to meet the most important people in the case – the jurors.
But isn’t that an equal risk that both sides face? Not really, and here’s why:
Unlike Insurers, Roofers have Nothing to Lose
That’s our second reason why the playing field is not level: if a roofer wins the lawsuit, the court will order the insurer to pay the roofer’s attorneys’ fees. If the roofer loses, he usually will not have to pay any attorneys’ fees. In short, insurers have tons of risks – whether they win or lose. Roofers? Virtually nothing to lose.
The third reason why the playing field is not level is because a “win” for the roofer could mean $1. Yes, $1. With a few exceptions, if a roofer obtains a judgment against an insurer for $1 more than the insurer offered to pay, the roofers’ attorney will get hundreds of thousands of dollars in attorneys’ fees.
Sophisticated Parties, Unsophisticated Rules
The fourth reason why the playing field is not level is because the prevailing party attorneys’ fees law does not make sense in the roofer versus insurer context. The prevailing party attorney’s fees rule was intended to make sure our grandmothers across the state don’t have to pay an attorney to sue their insurance company. This attorney fee rule is a windfall for roofing companies whose sole purpose is to profit. And with sales strategies like these roofers are using, there is no doubt they will make plenty of money soon.
Six Solutions that Should Be in Your Hail Toolkit
Enough with the problems. Let’s talk about the six things you should have in your hail toolkit to prevent indemnity and expense leakage:
1. Engage engineers with hail experience
If you are reading this article, then you’re probably the type of person that has vetted the experts.
Or are you? Have you met all of your engineers investigating hail losses face-to-face?
This is an obvious point, but its importance cannot be overstated. If the jury believes your expert more than the other expert, you will probably win. Go meet with the engineers in the industry and find out who you would believe if you were a juror.
2. Gather your best minds (or hire them) and draft specific policy language for hail claims
After securing the right engineer experts, get your team together to evaluate whether you can draft specific policy language relating to aesthetic roof damage caused by hail. If you can carefully craft this exclusion and satisfy OIR, you can avoid the vast majority of the new claims.
3. Get familiar with all of the weather data tools
Our friend Nick Cammarata’s firm, SDII Global, handles hail claims across the country. When he investigates hail claims, he starts by heavily investigating these three databases:
4. Read Verisk’s E-Book “Property Hail Claims in the United States: 2000-2013”
If only they had a 15 page report like this for Florida claims! In this report, Verisk provides hard data showing that the entire nation is seeing an exponential surge in how many hail claims are reported, and how much it costs to resolve them.
5. Talk to Lisa Miller to find out more about how you can help her AOB legislative efforts moving forward
One of the best ways to stop suspicious hail claims is to join Lisa’s effort to legislate AOBs right out of the industry. Of course, hail claims and emergency water extraction claims are two different animals; however, it will only be a matter of time before all of these roofers use AOBs to create litigation factories. As you may have noticed, we need all of the help we can get as the legislature continues to put the AOB issue on the backburner.
All you have to do is join Lisa and her clients. They have spent years pushing the legislature closer and closer towards solving this problem and, until we get some more support, we might continue to face standstills in the legislature. Of course, AOB legislation won’t prevent homeowners (rather than roofers) from reporting suspicious hail claims; however, it will prevent the landslide of new claims that will undoubtedly occur if the legislature does not pass the right AOB law.
Many insurers have already thrown their support behind Lisa’s efforts to stifle AOB claims, and your company should, too.
6. Use data analytics and automation to eliminate unnecessary indemnity and loss payout leakage for hail claims
Using claims and litigation software, your claims team and legal counsel can:
- know the result of a hail damage claim the second it is reported;
- automate the routine documents towards solidifying your coverage position; and
- streamline quality processes to efficiently resolve each claim.
Legal defense fees for hail claims are quickly skyrocketing without any clear end in sight. If you can leverage all of your prior and future claims data, you may not have to spend a dime to know the best possible outcome and who needs to be involved to get you there.
If you would like to know more about claims and litigation software customized for Florida homeowners insurers, sign up for CaseGlide’s “Six Ways to Split Legal Defense Costs in Half this Year Free Webinar” today.
To Hail and Back
Ultimately, the problems with hail damage claims will not go away by themselves. It’s going to take a real team effort to keep Florida homeowners’ insurance premiums down. After seeing how quickly the sinkhole and water extraction industries grew, we shouldn’t wait until hail claims get to those same dangerous levels.
Every insurer knows the tools they need to solve this problem today. We need experts like Nick to give insurers a backbone at trial to fight the frivolous hail claims. We need insurers to jump to support Lisa’s ongoing legislative efforts, and help her support these same efforts next year. We need data and reports showing the financial impact of these claims, rather than just opinions. Last but not least, insurers should pounce on opportunities to use claims and litigation software to resolve these claims as effectively and efficiently as possible.
Unpack your tools, and let’s go to work.
If you have any questions about this article or anything else Florida homeowners insurance related, please contact me.