Florida's AOB Crisis: A Social-Inflation Microcosm

Understanding Social Inflation

Social inflation is a term used to describe the rising costs of litigation and their impact on insurers' claim payouts, loss ratios, and ultimately, how much policyholders pay for coverage. While there's no universally agreed-upon definition, frequently mentioned aspects of social inflation are growing awards from sympathetic juries and a trend called “litigation funding”, in which investors pay plaintiffs to sue large companies – often insurers – in return for a share in the settlement.

Florida's Assignment of Benefits Crisis

Assignment of benefits (AOB) is a standard insurance practice and an efficient, customer-friendly way to settle claims. However, in Florida, legislative wrinkles have spawned a crisis. The state's “David and Goliath” law was meant to level the playing field between policyholders and economically powerful insurers. It lets plaintiffs’ attorneys collect fees from the insurer if they win their case – but not vice versa. This creates an incentive for attorneys to file thousands of AOB-related suits because there is no limit on the fees they can collect and no risk.

Reforming the System

A measure signed into law by Gov. Ron DeSantis earlier this year aimed to curb AOB litigation by putting new requirements on contractors and letting insurers offer policies with limited AOB rights, or none at all. However, it excludes auto glass repairs. The number of auto glass AOB lawsuits statewide in 2013 was over 3,800; by 2017, that number had grown to more than 20,000. Florida's experience provides an ongoing study into how hard it can be to stuff the social inflation genie back into its bottle.

For more details, see I.I.I.'s white paper, “Florida’s Assignment of Benefits Crisis: Runaway Litigation Is Spreading, and Consumers are Paying the Price”.