A brand new investigation into Florida’s property insurance coverage trade is about to start, elevating vital questions on insurer profitability, monetary transparency, and the true causes behind skyrocketing premiums for policyholders. As reported by Lawrence Mower in Florida Home to Examine Whether or not Property Insurers Hid Earnings With Accounting Methods, the Florida Home of Representatives is launching a probe to find out whether or not property insurers have been utilizing accounting maneuvers to masks their income whereas concurrently justifying charge hikes.
For years, Florida policyholders have confronted steep will increase in property insurance coverage premiums, with insurers blaming rising litigation prices, fraud, and pure catastrophe dangers. Nonetheless, the Florida Home’s current transfer suggests there could also be extra to the story. Lawmakers need to know whether or not insurers have been shifting cash inside their company constructions—probably to affiliated reinsurance corporations or different entities—to make their major insurance coverage companies seem much less worthwhile than they really are.
I and different insurance coverage trade critics argue that some Florida insurance coverage corporations have exploited advanced accounting techniques to siphon off income whereas portraying themselves as struggling companies. If true, these monetary methods may very well be artificially inflating the necessity for greater premiums and deceptive each regulators and shoppers in regards to the monetary well being of the trade.
This isn’t a brand new scheme. In 2008, I wrote Insurance coverage Trade Claims And Fee Practices Come Below Public Scrutiny, and famous the next:
Robert Hunter has lengthy studied and criticized many actions of the insurance coverage trade. He’s an actuary by commerce, a former insurance coverage commissioner, and serves because the Insurance coverage Director for the Client Federation. Florida Insurance coverage Commissioner Tom McCarty requested Hunter to testify in regards to the “duping” and alleged misinformation generated by insurance coverage trade commerce associations. Hunter supplied a prolonged report: Property/Casualty Insurance coverage in 2008: Overpriced Insurance coverage and Underpaid Claims Lead to Unjustified Earnings, Padded Reserves, and Extreme Capitalization, J. Robert Hunter, January 10, 2008. He detailed and supplied proof that the insurance coverage trade has made vital income and continues to take action regardless of offering alleged propaganda attempting to display in any other case.
My impression of his testimony is that insurance coverage firm executives attempt to cover true income being made to maintain charges as excessive as doable. Hunter primarily indicated that insurance coverage firm administration lied in its filings and practices. At one level, he referred to as the actions probably ‘unlawful’ when Senators have been questioning if felony exercise occurred. From expertise, most trustworthy folks and company representatives brazenly talk about and present paperwork when authorities demand solutions and proof of actions. Dishonest folks and entities cover and attempt to keep away from straight answering the identical as a result of guilt can be admitted. Anyone watching Allstate answering and avoiding manufacturing of requested info final week throughout the Workplace of Insurance coverage Regulation listening to has to have an impression that Allstate is hiding one thing actually unhealthy.
One of many major areas of focus of the present investigation will possible be the connection between Florida-based insurers and their affiliated reinsurance entities. Many insurers buy reinsurance from corporations they’re financially related to, permitting them to shift premiums and doubtlessly obscure true income. This follow raises considerations about whether or not these insurers are gaming the system—paying inflated reinsurance costs to associated entities whereas passing the associated fee onto shoppers.
Florida lawmakers and shopper advocates have lengthy suspected that inner monetary preparations between affiliated corporations could also be a key issue behind the relentless charge will increase imposed on householders. The upcoming investigation goals to deliver transparency to those transactions and decide whether or not legislative or regulatory modifications are vital to guard policyholders from unfair pricing practices.
If the investigation confirms that insurers have been manipulating their monetary reporting, it may set off a wave of reforms. Lawmakers could push for elevated oversight of insurer monetary practices, stronger shopper protections, and potential authorized penalties for corporations discovered to have misled regulators.
For Florida householders already burdened by excessive insurance coverage prices, this inquiry presents a glimmer of hope. If insurers are discovered to be partaking in misleading monetary techniques, state officers may take steps to make sure that charges are set extra pretty.
Insurance coverage regulators should demand and obtain clear, trustworthy monetary reporting from insurance coverage corporations to correctly decide if the requested charge is truthful. Policyholders need to know whether or not their rising premiums are genuinely justified by elevated dangers and losses or if they’re the results of hidden company revenue methods.
Thought For The Day
“We are able to simply forgive a baby who’s afraid of the darkish; the true tragedy of life is when males are afraid of the sunshine.”
—Plato
