Dispelling Misconceptions: The Truth About AOBs and How They Can Help You

Assignment of Benefits forms, or AOBs for short, are an important part of the contractor-client relationship in the restoration industry. AOBs are legal documents that allow policy holders to assign the benefits of their insurance policy to a third party. In other words, AOBs allow policy holders to directly connect you, their restoration contractor, to their insurance company and avoid much of the hassle and stress associated with a restoration job. Despite the advantages AOBs offer, misconceptions and myths abound, leading many restoration contractors to view them as potential threats rather than valuable tools. In this article, we aim to debunk prevailing misconceptions surrounding AOBs and shed light on how they can be beneficial instead of detrimental.

The Negative Perception Surrounding AOBs: A Historical Perspective

The negative connotation surrounding the assignment of benefits in the restoration industry, particularly in the state of Florida, is largely due to how assignments were being handled there. Florida laws allowed policyholders and contractors with assignments to sue insurance companies without paying the company’s attorney fees if they lost. This unfairly burdened insurance companies and led to them being sued for small amounts, creating a lose-lose situation. Insurance companies successfully lobbied to restrict assignments of benefits in Florida, causing negative connotations for the practice.

“Historically in other states, if a contractor has an assignment of benefits and they choose to sue the insurance company, they better be sure that they’re going to win, they better have a valid and honest invoice that is supportable through litigation or appraisal,” said Josh Ehmke, co-founder of One Claim Solution. “If they lose, they have to pay the insurance company’s attorneys fees, and so there’s risk there.”

Ehmke further emphasizes that when risks exist for both contractors and insurance companies, an AOB can serve as a valuable tool, providing added protection to both parties involved. By taking into account the historical context and implementing the necessary safeguards, it becomes clear that AOBs can be a beneficial mechanism for the restoration industry, rather than a detriment.

Myth #1: AOBs limit the control of policyholders over their claims

There’s a misconception that by signing an AOB, policyholders relinquish control over their insurance claims. In reality, an AOB is a legal agreement that grants the contractor the authority to negotiate and communicate with the insurance company on behalf of the policyholder. However, the policyholder still maintains the right to be involved in the decision-making process and provide input.

In fact, granting negotiation authority to the contractor can often be in the policyholder’s best interest. According to Ehmke, AOBs allow for the transfer of what’s called a “chosen action,” or the ability to challenge the insurance companies payment amount and their payment method.

“If the carrier ends up issuing an extremely low payment that the contractor feels is very unreasonable, they can challenge that payment,” Ehmke said.

Policyholders can choose to file a lawsuit against the carrier to claim a breach of contract or challenge the payment through litigation to establish the reasonable amount. Hence, policyholders retain control and have recourse to ensure fair treatment throughout the claims process.

Myth #2: AOBs are primarily used for profit-seeking purposes

Some believe that AOBs are primarily utilized by contractors as a means to maximize profits by inflating claim costs. While there have been instances of fraudulent practices as previously mentioned, it’s important to acknowledge that AOBs can also serve as a convenient tool for policyholders to delegate the claims process to contractors, particularly in situations where immediate repairs or restoration work is required. Property disasters can be stressful and contractors play a key role in alleviating the concerns a homeowner may have by doing the restoration work and dealing directly with the insurance company.

“As long as a homeowner has the appropriate coverage, the contractor will work out the payment, and the homeowner will never have to worry about it,” Ehmke said. “Instead they can worry about getting their house and life back together.”

AOBs, when used ethically, provide a valuable service to homeowners and contribute to the efficient restoration of their properties.

Myth #3: It’s better for homeowners to avoid AOBs

When homeowners assign their benefits through an AOB, they can often avoid significant out-of-pocket expenses for repairs and services covered by their insurance policy. The contractor can work directly with the insurance company for payment, reducing the financial burden on the homeowner. This can be especially beneficial for homeowners who may not have the immediate funds to cover the costs upfront.

“For many homeowners, it’s a great benefit that a contractor is willing to move forward with work without the upfront payment. Many Americans are living paycheck to paycheck and don’t have that kind of money for a rainy day,” Ehmke said.

While some homeowners may initially hesitate to sign an AOB due to concerns about giving additional control to the contractor, it is crucial to provide them with reassurance. By explaining the assignment process and its benefits, homeowners can gain peace of mind, knowing that AOBs offer a practical solution that eases their financial burden and facilitates the restoration of their property.

A Final Word

AOBs are a vital component of the restoration process, offering numerous advantages for both contractors and clients. By dispelling misconceptions and understanding the true nature of AOBs, contractors can build trust with clients, expedite payments, and alleviate stress and confusion. Stay informed about AOBs and discover effective strategies to optimize your restoration business by subscribing to our newsletter at One Claim Solution today.