Your home or business is damaged. Your first priority is to get it fixed right away, so you call a contractor to assess the situation and give you an estimate on the repair cost. It makes sense: the insurance company will want one anyway, right? But this simple process may turn into a nightmare, depending on how you handle it.

What is Assignment of Benefits (AOB) and how can it be abused?

Whether you’re talking about medical, business or homeowner’s insurance, an Assignment of Benefits is simply an agreement that says where the insurance benefit will go. Instead of going directly to the consumer, an AOB allows a provider (such as a medical facility or roofing contractor) to deal with and be paid by the insurance company directly. The problem is that some contractors, who don’t have the customer’s best interests at heart, may take advantage of this process in order to make more money, by inflating the cost of repair and/or suing the insurer to settle the claim in their favor.

Why does it matter?

You might think: As long as the damage is repaired and paid for, who cares how much my contractor makes? But an unethical and litigious interaction between your contractor and your insurance company may have long-term effects, not on them, but on you. Insurance companies may hike up your premium or outright refuse to renew your policy. In Florida, chronic AOB abuse has resulted in increased costs and a decrease of availability of insurance for consumers. In some cases, contractors have even abandoned projects before they are completed, because they have already been compensated by the insurance company, leaving the homeowner with no recourse.

Preventing Assignment of Benefits fraud:

Call your insurer first. Just as with medical procedures, if you don’t call the insurance company first, you risk having your claim denied. Although the insurer doesn’t have the same expertise as a contractor, they can confirm the damage and let you know how to properly go through the process.

Vet your contractor: Always investigate a contractor’s credentials, and make sure they are licensed in your state. Before any repair work is done, request a detailed estimate, and insist that you be consulted before any work is done beyond anything you have already consented to.

Proceed with caution: If a contractor or attorney contacts you first, be suspicious. They may be in the business of seeking out and preying on unsuspecting consumers. Ask about referral fees, and be wary of anyone who tries to rush you or pressure you into an agreement.

Don’t sign on the dotted line: Never let an attorney or contractor talk you into signing something you don’t understand. Talk to your attorney or insurance company first, and trust your gut.

Steer the process: A contractor seeking an AOB will want to contact your insurance company for you. Stay in control of the process and work with the insurance agent yourself.