An assignment of benefits, or AOB, is a legal tool that allows an insurer to directly pay a third party for services performed rather than reimbursing a claimant afterwards. In recent years, insurers have experienced an increase in fraud and abuse of assignment of benefit provisions, resulting in higher costs.
Assignment of rights to collect under an insurance policy after a loss are common. In many cases, homeowners will assign the right to collect to contractors or other service providers following a loss. Vendors soliciting AOBs from policyholders are typically associated with property insurance, auto repair, and personal insurance claims. While such assignment may allow policyholders to make emergency repairs more quickly, the practice has resulted in many homeowners becoming the victims of scam artists and other unscrupulous service providers. Contractors have sought to unilaterally establish the value of the claim and demand payment for inflated invoices. Many contractors also work with attorneys that then sue the insurance company over the claim.
State legislatures have sought to protect insurance consumers by imposing common sense limitations. For example, the Florida legislature considered, but failed to pass, legislation in 2017 to provide that an assignment of benefit would not be valid unless 1) a written agreement is executed by all named insureds; 2) the insureds may rescind the assignment within seven business days without penalty; 3) the assignee provides a copy of the assignment agreement to the insureds no later than three business days; and 4) the agreement includes a written, itemized, per-unit cost estimate of the work to be performed by the assignee.
Given the potential for fraud, which raises costs for all consumers, NAMIC supports legislation in the states to protect policyholders and insurers from assignment of benefits abuse.