Are assignments of benefits (AOB) an invasive species in the property and casualty environment?

As the “assignment of benefits” process has migrated from health policies to P&C claims, its use has created difficulties for both property owners and insurers. The original intent of AOB’s in the healthcare industry was to insulate the insured from navigating the bureaucracy of billing processes, HCPCS codes, and payment delays. At the same time, it allows care providers to match their claim to the specific requirements of the insurer.

The potential problem with an AOB is it takes evaluations and decisions regarding appropriate costs and services out of the hands of the person making the payment. When a policyholder does not need to come out of pocket for a claim, the question of whether the cost is reasonable is less of an urgent matter for the insured. Claims made directly to an insurer by a third party service provider also make the billing less visible to the insured. Even if the payment will be reimbursed, a payment made by an insured becomes somewhat of a monitor of cost.

This mechanism has moved into the P&C industry only for a short time, in mostly one state. For the past 18 – 24 months in Florida, AOB use in homeowners property claims has created what borders on chaos for both policyholders and insurers. Why different results with property claims when health insurance claims have been direct billed for decades?

The assignees in the health insurance world are almost exclusively medical professionals, hospital groups, and doctor enterprises. These are highly regulated and larger scale professional businesses. Although errors and fraud do occur, the relationship between two professional industries has developed over time to create a standardized process which allows both parties to coexist on a sustainable basis.

Conversely, the service providers in the P&C assignment mechanism are not as highly regulated. In theory, the providers of services for AOB’s would be building contractors, roofers, plumbers, and electricians. However, the trouble being reported by insurers and property owners largely exists when claims are assigned to service providers who are less regulated or unlicensed, such as water extraction or cleaning companies. The exponential spike in claims expense does not fit within the current premium cost structure. If not balanced quickly, premiums paid by policyholders will increase across the market, or the underlying insurers would become insolvent.

So far the only attempted solution has been to prohibit referral fees paid for leads on claimants. This is difficult to enforce and can be subverted by contractors using shared project billing discounts, advertising agreements, and co-located office rental agreements. The unsustainable dysfunction within the use of AOB’s in the P&C claims process has a few possible solutions. One is to require that assignees be licensed at some level, either as an existing licensed occupation, or a certificate newly created to allow for continued use of AOB’s by property owners.
A second element to a possible solution would be to establish an verifiable inspection process when the claimed repair is in excess of a threshold amount, in advance of work being performed. One of the issues presented by insurers is that a claim for amounts much higher than anticipated are received weeks or months after the claim and repair are completed. This does not allow for the insurer to inspect the damage to determine if the repair and cost is appropriate.

The nature of standard billing codes, negotiated reimbursement amounts, and limited medical provider latitude has largely kept AOB’s from becoming an infective agent.
In an ecosystem without these balancing species in the food chain, the newly introduced link can wreak havoc on a sustainable system.

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