Florida’s insurance regulator is examining property insurers

Florida regulators have launched a financial review of dozens of domestic property insurers in the state as the industry once again begins to show signs of distress.

The Florida Office of Insurance Regulation is looking at how money flows between the insurers and their corporate affiliates in what it called a “targeted examination.”

“As always, [the Office of Insurance Regulation]’s main focus is to foster a stable and competitive insurance market and engage in regulatory activities to protect consumers,” said Alexis Bakofsky, spokeswoman for the Florida Office of Insurance Regulation.

The inquiry comes against a backdrop of tumult in Florida’s domestic property insurance market.

More than a dozen property insurers were threatened in January with a downgraded financial health score by private rating agency Demotech Inc. Nearly 10 requestd substantial rate increases because of ballooning legal costs, spiking reinsurance rates and lingering storm claims.

Now Citizens Property Insurance Co., the state-run insurer of last resort, is expected to hit a recent high in policies as private insurers pull back from coverage in Florida, jumping six percent between June and August alone.

According to a letter obtained by the Tampa Bay Times through a public records request, the examination focuses on financial arrangements between 60 insurers and their affiliates, including some of the biggest names in the state.

A similar analysis hasn’t been conducted for eight years.

“I think it is significant,” said Sean Shaw, a former insurance consumer advocate for the state who recently ran for attorney general.

***

The regulator is examining insurers that fall under larger holding companies. Often, a holding company oversees a number of firms, at least one of which is licensed as an insurer in the state. Another firm that can be included in this structure is called a “managing general agent.” It provides services to the insurer that often includes daily operations, such as underwriting and administering policies.

Such arrangements have grown “dramatically” in recent years, said Mark Friedlander, Florida representative for the Insurance Information Institute.

They can help attract outside investment, as managing affiliates are able to pay out dividends much quicker than the insurer can under state law. They can also be a source of income. Managing affiliates are allowed to charge up to $25 per policy, as well as a fee for providing their services to the insurer. That fee is often tied to policyholder rates; when rates go up, so does the fee.

The Sunshine State also has a unique twist on these affiliates, said Jack Nicholson, business professor at Florida State University.

Follow trends affecting the local economy

Subscribe to our free Business by the Bay newsletter

We’ll break down the latest business and consumer news and insights you need to know every Wednesday.

Loading...

You’re all signed up!

Want more of our free, weekly newsletters in your inbox? Let’s get started.

Explore all your options

“Florida is one of the few states that have managing general agent relationships that are not arms-length,” Nicholson said. He directs the university’s Florida Catastrophic Storm Risk Management Center.

Because companies aren’t required to shop around for these services externally, many opt to keep them in-house under their holding company structure, often sharing executives and shareholders between the insurer and the managing affiliate.

The model can be a legitimate way of doing business. But in worst cases, insurance executives and shareholders can use managing affiliates to charge excessive fees that go toward their own payouts.

“The one that’s the poster child for this is Poe,” said Shaw, the former insurance consumer advocate.

Poe Insurance Group was a Tampa-based collection of companies founded by former Tampa Mayor Bill Poe that included Southern Family, Atlantic Preferred and Florida Preferred. Following the particularly active 2004 and 2005 hurricane seasons, the three insurers became insolvent, unable to pay claims.

The state sued the insurer in 2008, saying that as the companies struggled to make good on their commitments to policyholders, their executives and shareholders continued to receive millions of dollars in distributions. They were unable to pay roughly $850 million in claims, which was recouped by distributing the charge to all Florida ratepayers.

***

Managing affiliates also came under scrutiny in 2010.

Then-insurance commissioner Kevin McCarty called for an examination of insurers' relationships with their managing general agents after his office ordered Southern Oak Insurance Co. to lower the amount it paid to its managing affiliate.

The Office of Insurance Regulation’s Bakofsky said the agency often reviews managing affiliate and service agreements to understand the relationships and the fees paid.

The agency’s current inquiry includes a wider breadth of affiliates than previously examined, such as related companies that provide technology support.

In a letter dated July 30, the agency asked insurers to disclose how much money their affiliates made from providing their services, and about any physical office space insurers gave to their affiliates without charge.

Regulators also asked about any loans the insurers received and from whom. The examination’s purpose, the letter said, was to help regulators understand how the financial results of the insurers could be improved.

Legislation passed from 2014 to 2018, Bakofsy said, gives the Office of Insurance Regulation “additional tools” to evaluate insurers’ finances this time.

Paul Handerhan, president for the Federal Association of Insurance Reform, said the increased oversight regulators have may help the state catch any issues early before they snowball. The inquiry, he said, makes sense given the recent market upheaval.

“Because of the rate increases,” he said, “rightfully so they should be looking at all the other entities from the holding company (and) managing affiliates to make sure everything that’s being done is being done properly.”

Regulators now have access to a full list of companies under a holding company. Insurers are required to submit a self-assessment that points to any corporate risks posed by any of its related companies. And the state also has more information on who governs the various entities.

A majority of the state’s property insurers are subject to the current inquiry. Universal Property & Casualty Insurance Co., the state’s largest property insurer by number of policies, is on the list, as is No. 3 in the state ASI Preferred Insurance Corp. and Tampa’s Homeowners Choice Property & Casualty Insurance Co.

Universal spokesman Travis Miller said the insurer could not speak specifically about the review, noting that “Florida insurance code contains extensive regulations pertaining to insurance holding companies and agreements among affiliates.”

“These transactions are the subject of frequent routine submissions and disclosures,” he said.

Homeowners Choice declined to comment. A representative for ASI indicated the company would comment but did not return further emails or calls.

Companies' answers to the state inquiry, Bakofsky said, are not public record.