FLORIDA
Florida House Investigating Reports That Insurers Hid Profits While Claiming Losses
TALLAHASSEE, Fla. //BestWire// - The Florida House of Representatives Insurance & Banking subcommittee will be conducting hearings into allegations that property/casualty insurance companies were reporting net losses while their affiliates pulled in billions in profits.
House Speaker Daniel Perez announced the hearings during his opening remarks for this legislative session, highlighting the importance of property insurance issues.
“A couple of years ago, the insurance industry came to the Legislature and said without sweeping reforms companies could not compete in Florida. We have since learned of reports — in existence at that time but not disclosed to the legislature — that may suggest some insurance companies were using accounting tricks to hide substantial profits while telling us they were in a crisis.”
The subcommittee will have the ability to subpoena witness and place them under oath as well as hire outside experts, Perez said.
Perez is alluding to a 2022 report, surfaced by the Tampa Bay Times, which found from 2017 to 2019 insurers saw net income of $61 million, while net income for affiliated companies totaled $1.8 billion during the period.
However, the totals were skewed by outliers, including one carrier that realized net income of $493 million and affiliates from two national carriers. With the outliers removed, insurance carriers saw a net loss of $432 million during the period, while affiliates saw net income reach $14 billion.
The 2022 study was commissioned by the Florida Office of Insurance Regulation and ultimately reviewed data from 53 companies. Among the companies reviewed, 41 used managing general agents or attorneys-in-fact to administer policy and claims operations.
The insurance regulator refuted the work constitutes a study or a report, but was rather an “internal analysis,” according to Shiloh Elliott, press secretary for the regulator.
The analysis found among 35 single-state and regional insurers, just 19 had fee structures that could be deemed “fair and reasonable.” Among 18 national insurers, only one had fair and reasonable fees.
During the reviewed period, insurer affiliates waived $208 million in fees and made capital contributions of roughly $951 million. At the same time, insurers paid $680 million in dividends and $48 million on surplus notes, reducing the capital of 29 insurers by a total of $728 million.
“The majority of the single state/regional insurers appear to use MGAs as a revenue stream for the holding company based on the positive net income of the holding company despite $208 million in fee forgiveness and $485 million in capital contributions during the review period,” the analysis says. “The national companies use a combination of MGAs and affiliated cost sharing agreements to administer operations with no fee forgiveness and $156 million in capital contributions.”
MGA compensation ranged from 20% to 34% of premium based all the agreements reviewed. Total affiliated fees —including MGA, claims, commissions and investment management — ranged from less than 1% to 63% of premium, the report found.
The Tampa Bay Times report leans heavily on “cherry-picked information and erroneous data,” said Mark Friedlander, director of communications for the Insurance Information Institute.
“There are some consumer advocates and other parties, including a few members of the Florida Legislature that are billboard attorneys who profit off of suing insurers, which continue to push a false narrative that Florida’s man-made risk crisis was not caused by legal system abuse,” Friedlander said in an emailed statement.
The period reviewed came right before the collapse of the Florida property insurance market, during which rates skyrocketed as some carriers became insolvent and others pulled back in the state. The destabilized market led lawmakers to enact a raft of regulatory and legal reforms in the years that followed (BestWire, April 7, 2022).
Since 2022, Florida has also increased its regulatory framework to give the commissioner more oversight into managing general agents, Elliott said. The regulator has used these new powers to cancel or modified MGA agreements.
“The office also continues to advocate for more oversight in this space each legislative session,” Elliott said in an emailed statement. “The office has terminated, modified and placed duration limits on these contracts and required companies to provide an excruciating level of justification for them.”
The regulator said it would like to see clearer definitions around fair and reasonable fees, including stating the amounts as whole dollars as opposed to percentages. It is also seeking more oversight into agents engaged in MGA business models as this is currently regulated by a different agency.
“OIR has provided language to the legislature each session since the commissioner's arrival to define fair and reasonable. However, it has not succeeded,” Elliott said.
The five largest writers of multiperil homeowners insurance in Florida during 2023, based on direct premiums written, were: Citizens Property Insurance Corp., with a 18.57% market share; Universal Insurance Holdings Group, 8.47%; State Farm Group, 6.88%; Florida Peninsula Group, 4.88%; and Tower Hill Group, 4.35%, according to BestLink.
(By Steve Hallo, senior associate editor, BestWire: Steve.Hallo@ambest.com)