Amid Florida insurance crisis, lawmakers drop idea to investigate profits

The legislation still gives state regulators new powers and bigger fines for insurers.
A home damaged by Hurricane Ian is seen along Fort Myers Beach on Oct. 3. Ever since 1992′s Hurricane Andrew upended the state’s insurance market, the state has been dominated by small, Florida-based insurance companies.
A home damaged by Hurricane Ian is seen along Fort Myers Beach on Oct. 3. Ever since 1992′s Hurricane Andrew upended the state’s insurance market, the state has been dominated by small, Florida-based insurance companies. [ AL DIAZ/ADIAZ@MIAMIHERALD.COM | Miami Herald ]
Published April 28|Updated April 28

TALLAHASSEE — State lawmakers’ legislation to crack down on misbehaving insurance companies had teeth.

Maybe a few too many.

A provision that would have pierced the veil on insurance company profits by requiring insurers to report new information to the state was met with resistance when the bill was introduced last month.

By the time senators unanimously approved the bill Wednesday, it was gone.

SB 7052 still gives state regulators new powers to investigate insurers and hold them accountable, a sea change in Tallahassee after years of largely giving companies what they want in an effort to stop rapidly rising premiums and a slew of company insolvencies.

But the conflict over a provision that targeted domestic insurers’ business models highlights the dilemma state lawmakers and regulators face with the insurance crisis.

Ever since 1992′s Hurricane Andrew upended the state’s insurance market, the state has been dominated by small, Florida-based insurance companies.

Those companies have attracted investors because of the chance to make immense profits in storm-free years.

Insurance company profits are capped by state regulators, who approve rate filings each year. But many domestic insurers’ business models revolve around creating sister and parent companies, which charge the original insurer fees.

These affiliates can charge the insurance company up to $25 per policy, as well as a percentage fee of premiums for providing services to the insurer. That fee, commonly between 20% and 30% and approved by regulators, is often tied to policyholder rates. When rates go up, so does the fee.

Between 2005 and 2017, when the state saw no named storms, domestic insurers were highly profitable.

In 2015, the CEO of Tampa-based Heritage Insurance Holdings made $27.3 million, more than twice the CEO of State Farm, the nation’s largest insurer. In 2017, the CEO of Fort Lauderdale-based Universal Insurance Holdings was the highest-paid property and casualty insurance company executive in the nation, at $19.3 million in compensation.

However, state regulators have repeatedly cited excessive fees to affiliate companies as a reason insurers are going under.

When Tampa-based Homewise Insurance Co. and one of its affiliates went insolvent in 2011, for example, auditors hired by the state dug into the company’s books. They found tens of millions of dollars in fees paid to its parent company each year.

“The heavy flow of cash out of the Company … weakened both insurance companies and ultimately contributed to their insolvency,” auditors wrote.

The initial version of SB 7052 would have provided unprecedented insight into insurers and their affiliate companies. Companies would have been required to report to the state:

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  • the “actual cost” of each service provided by an insurer’s affiliate company
  • the relative financial condition of the insurer and its managing company
  • the amount of dividends paid by the parent company

The language was dropped during negotiations with the House and Senate, however.

The Senate bill sponsor, Sen. Travis Hutson, R-Elkton, said both sides agreed that they didn’t want to do anything to “upset the apple cart” of Florida’s insurance industry. And that included not challenging the industry’s business model.

“We’re trying to make sure the business model can stay intact, but the bad actors we’re going to go after,” he said.

In exchange for dropping the reporting requirements, both chambers agreed to require insurers adopt “best practices” for handling claims, Hutson said. Companies would have to create, and use, claims-handling manuals, and allow the Office of Insurance Regulation to request those manuals.

The legislation also gives the office new powers to investigate insurers, sharply increases fines against them and requires regulators to regularly report their actions against insurers to the Legislature.

On Thursday, the Senate passed the bill with no debate. The House is expected to take it up next week.

Insurers have privately opposed the bill.

Mark Friedlander, Florida spokesperson for the industry-backed Insurance Information Institute, said the bill “appears to be a direct response to negative feedback some legislators have received from their constituents” about the bills passed by the Legislature last year. The bills made it harder to sue insurance companies and dedicated $3 billion to help insurers.

Friedlander said last year’s bills will create a more stable insurance market and “more competitive pricing.”

Many of the changes were requested by the state’s new insurance commissioner, and others were spurred by news coverage of the state’s insurance crisis, Hutson said. The new law would also require insurers to document any changes to an adjuster’s report and include the name of the person who ordered the changes, a reaction to a Washington Post story last month in which adjusters said their reports were manipulated to reduce payouts to homeowners.

“We want to make sure the insurance company is treating the consumer fair,” Hutson said. “If they’re not treating the insured fair, then it’s a problem. … They should get severely penalized.”

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