Secret Study Reveals Florida Insurers Shifted Billions While Claiming Losses
A previously secret study unveils allegations of Florida insurance companies transferring billions to affiliated entities, even as they claimed financial distress due to major storms, thus justifying substantial premium increases for homeowners. The Miami Herald and Tampa Bay Times obtained and released the 2022 report, casting a harsh light on the state’s ongoing insurance crisis.
This is the most eye-opening ray of sunlight to pierce the shadowy world of Florida homeowners insurance in years.
Doug Quinn, executive director of the American Policyholder Association, stated to Newsweek, underlining the severity of the situation. He further stated that Florida policyholders have had money taken out of their pockets that they simply cannot afford.
Crucially, the Florida Office of Insurance Regulation (FLOIR) has only provided an executive summary of this report, omitting important details like indexes. Quinn noted the importance of releasing the complete report to assess the terms used in executive summary and to arrive at correct conclusions.
Birny Birnbaum, executive director of the Center for Economic Justice and a former chief economist at the Texas Department of Insurance, explained to Newsweek that the full report is needed. He also indicated that Florida is making the full report inaccessible due to its $1,500 cost. The practice of charging a hefty sum to access the document casts doubt on the OIR’s claim that the report isn’t confidential.
What Does The Report Reveal?
While Florida regulators limit insurers’ profits to around 4.5 percent, profits of affiliate and parent companies are not subject to these controls. Insurers are known to transfer money to reward executives and investors, which is a practice open to abuse.
The 2022 study revealed that the significant sums removed from companies by executives violated state regulations. Florida insurers were weakened by these transfers, making it hard for them to pay claims to policyholders.
Newsweek reached out to a spokesperson for Florida state Senator and state Senate President Ben Albritton, who stated they were unaware of the report. The Miami Herald also confirmed that Florida lawmakers did not see the report, as it was reportedly in a “draft” status.
Newsweek contacted the report’s author and FLOIR for comment. FLOIR, in a statement to the Miami Herald, said the report paints an incomplete picture of insurers’ finances but highlights the need for reforms.
In the past few years, unaware of such practices, Florida regulators tackled the state’s property insurance crisis that focused on excessive litigation and widespread fraud. Quinn thought that was a mistake, and that Florida legislators were duped into removing constituents’ rights of collecting legal fees from insurers found guilty of cheating them.
Quinn also argued that the claim that insurance companies are losing money was used to justify considerable premium increases and rationalize company insolvencies. He attributed them to excessive executive compensation, asset draining through affiliates, and plain bad management.
According to Quinn, the role that excessive litigation played in recent rate hikes has been exaggerated, “as evidenced by the fact that two years after the passage of pro-insurer/anti-consumer ‘tort reform’ laws, the state of Florida has still among the highest insurance premiums in the country.”
Quinn suggests that the stabilization of the Florida market is just the return of insurers, who are now attracted by the opportunity “to take advantage of policyholders with limited consequences.” According to Quinn, there is nothing to suggest any of “the behind-the-scenes dynamics” exposed in the 2022 report have changed.
What Impact Did Insurers’ Money-Shifting Have?
For Birnbaum, this money-shifting played a part in the crisis of the past few years, resulting in skyrocketed premiums and reduced availability in the state’s market.
He stated that the major causes of the crisis were thinly capitalized insurers, using bogus financial ratings from Demotech, and companies being unable to deal with catastrophe losses. This was due to their limited capital and their heavy reliance on reinsurance; however, with reinsurance prices rising and the supply shrinking, these insurers’ business models failed.
Birnbaum pointed to the huge catastrophe exposure and the Legislature’s leniency toward insurers cutting coverage and requiring massive deductibles as the problems with the Florida market.
Quinn believes that the money-shifting revealed was especially devastating for seniors and working-class families. He added that many people have left the state due to unaffordable insurance premiums, which has dramatically impacted the Florida real estate market. To add insult to injury, not only are prices the highest in the nation, but Florida insurance companies also have some of the worst claims-paying histories.
Have Things Changed Since The 2022 Report?
Florida regulators claim that things have changed since the 2022 report with enhanced oversight and regulation. However, Quinn remains doubtful, saying, “You can have all the laws and regulations you want, but if the state regulatory and law enforcement agencies do not enforce them, they have no use, and bad actors will abuse the system.”
Quinn believes the regulatory and law enforcement agencies in Florida are weak on insurance. The crisis could not have happened unless those responsible for protecting the citizens of Florida allowed these manipulations.
Florida regulators recently welcomed efforts and approved new insurers to enter the state’s market, claiming that tort reform had worked and that the market was stabilizing. However, Birnbaum does not concur. He believes that claims by the governor and OIR are a sham.
According to Birnbaum, the newly entered companies use the method of acquiring policies from Citizens with no acquisition costs, relying heavily on reinsurance and services from affiliates. He added that they exploit this method to generate money without risk, siphoning massive percentages of premium to affiliates. He also stresses that consumers have not seen material rate relief.
According to NerdWallet’s recent data, homeowners insurance costs an average of $2,625 a year for $300,000 worth of dwelling coverage in Florida, higher than the national average of $1,915.
Birnbaum and Quinn state that litigation was not a major driver of insurance premiums in Florida. Instead, they attributed it to catastrophe risk and insurers excluding coverage.
