Investigative reporter Lawrence Mower deserves some kind of award and thanks. His work has unveiled a deeply regarding sample inside Florida’s insurance coverage business, famous within the story: Secret Examine Discovered Florida Insurers Despatched Billions to Associates Whereas Crying Poor. Whereas insurers have publicly lamented their monetary hardships, Mower’s findings reveal that these corporations have been diverting substantial funds to affiliated entities and traders, all whereas justifying premium hikes and influencing laws that disadvantages policyholders.
The confidential report commissioned by the Florida Workplace of Insurance coverage Regulation (FLOIR) titled “Affiliated Payment Evaluation Govt Abstract” sheds mild on these practices. The report signifies that executives from quite a few Florida-based insurers extracted important sums from their corporations, typically in violation of state rules. This monetary maneuvering left many insurers in a weakened state, probably jeopardizing their means to meet claims throughout the state’s escalating insurance coverage disaster. Alarmingly, this report was by no means shared with state lawmakers, elevating questions in regards to the transparency and accountability of regulatory our bodies. The report places meat round my publish from two years in the past, How Florida Insurance coverage Executives Siphon Off Tens of millions and Go away Their Corporations Bankrupt.
Below the questionable management of former Insurance coverage Commissioner David Altmaier, the FLOIR appeared to prioritize authorized reforms that curtailed policyholders’ rights, ostensibly to handle the business’s monetary woes. Nevertheless, the revelations of undisclosed earnings being funneled to associates solid severe doubt on the legitimacy of the business’s claims of monetary misery. A coordinated narrative of monetary instability was probably employed to control legislative outcomes, leading to legal guidelines that disproportionately favor insurers on the expense of policyholders.
Why didn’t then Insurance coverage Commissioner Altmaier elevate these points? Why didn’t he clarify that this was occurring whereas testifying earlier than Florida lawmakers and making quotes to the press blaming the insurance coverage disaster on attorneys and restoration contractors? Might it’s that Altmaier is a part of the “revolving door” of insurance coverage regulators shifting on to quietly promised future employment with these regulated insurance coverage corporations, as famous in The Revolving Door Connecting Insurance coverage Regulators with the Supposedly Regulated Insurance coverage Business.
In response to those unsettling practices, Florida Senator Don Gaetz has launched laws aimed toward enhancing transparency inside the insurance coverage sector, as famous on this week’s publish, “Why Shouldn’t Insurance coverage Executives Disclose Their Pay?” His proposed laws mandates complete disclosure of monetary relationships between insurers and their associates, together with government compensation and revenue allocations. This initiative represents a vital step towards dismantling the key organizational buildings which have lengthy enabled insurers and their executives to obscure their true monetary place and earnings.
The key report exhibits the Florida insurance coverage business has operated below a veil of monetary manipulation, making it more and more troublesome for regulators and policyholders to grasp the true monetary well being of insurers. The important thing tactic includes artificially inflating insurer bills by shifting earnings to affiliated corporations by way of extreme charges for providers like claims processing, underwriting, and coverage administration. This strategic maneuver permits insurers to look as if they’re working at a monetary loss or barely breaking even whereas the affiliated corporations gathering these charges proceed to report substantial earnings.
By structuring these transactions by way of Managing Basic Brokers (MGAs) and different associates, insurers create a posh monetary framework that conceals their precise stability. This lack of transparency prevents regulators from precisely assessing whether or not an insurer is getting ready to insolvency or merely engaged in subtle accounting practices to divert income. The shifting of earnings by way of these affiliate transactions not solely distorts monetary statements however may affect rate-setting selections. Insurers who seem like struggling on paper could obtain approval for premium hikes, even when their affiliated corporations are thriving.
The manipulation of monetary information doesn’t simply influence oversight—it immediately impacts Florida policyholders who face inflated insurance coverage charges. When insurers declare monetary misery, they justify elevating premiums regardless of their affiliated entities accumulating huge sums in hidden earnings. Price approvals are decided primarily based on an insurer’s monetary want. By artificially inflating bills by way of extreme affiliate charges, insurers can safe charge will increase which are neither honest nor vital.
Along with inflating policyholder premium prices, these monetary techniques enable insurers to evade dividend and capital necessities meant to guard policyholders. Florida regulators monitor dividends and capital reserves to make sure that insurers stay solvent and able to paying claims. Nevertheless, insurers can extract cash by way of inflated affiliate charges as a substitute of distributing earnings by way of conventional dividends—which might be topic to regulatory scrutiny. This follow retains earnings outdoors the attain of regulatory oversight and permits insurers to divert funds in methods that won’t profit policyholders. The difficulty turns into much more regarding when affiliated corporations are primarily based out of state or offshore, making it practically not possible to trace the place the cash goes and whether or not it’s going to stay obtainable to pay claims within the occasion of a major disaster. These practices have raided policyholder and insurer surplus.
Compounding the issue is a sample of weak enforcement by the Florida Workplace of Insurance coverage Regulation (FLOIR). Regardless of clear proof that insurers are exploiting affiliate buildings to protect earnings, regulators have achieved little to rein in these abusive monetary practices. One purpose for this failure may very well be the affect of business lobbyists, who’ve efficiently pushed for legal guidelines that enable insurers to set their very own phrases for affiliate agreements with out strict statutory definitions of what constitutes a “honest and affordable” price construction. With out these clear pointers, insurers are free to cost no matter they need in affiliate charges, making a system the place the monetary pursuits of executives and company entities take priority over the rights of policyholders. This wants to vary, and the present insurance coverage commissioner wants to advertise the power of his workplace in order that he has the ability to research and report on these shady actions.
This regulatory failure factors to a deeper challenge of business affect over state oversight. The insurance coverage foyer exerts important energy in Tallahassee. I’ve lengthy argued that Florida’s insurance coverage regulatory atmosphere has been compromised by these with a vested curiosity in supporting regardless of the insurance coverage business wishes. The result’s an business that cries monetary hardship whereas quietly funneling billions into affiliated companies and traders, leaving policyholders to pay the worth within the type of larger premiums, diminished protection, and an more and more unstable insurance coverage market.
How typically have I been in Tallahassee listening to insurance coverage lobbyists and executives saying they’re shedding cash? This report proves that the Florida insurance coverage foyer and lots of insurance coverage executives are misleading and self-dealing. It’s maddening to me to think about our efforts when debating these points within the press and in testimony with then Commissioner Altmaier, figuring out that he was not absolutely explaining the precise state of affairs.
Whereas not raised within the article or the report, the reinsurers are one other group that ought to be investigating and trying to recoup cash. The reinsurance market is owed an obligation of utmost good religion and honest dealing, which implies that bills ought to be respectable and never go into the pockets of insurers’ executives by way of illegitimate bills.
One closing query is how far these insurance coverage business techniques are getting into different states. Definitely, the Nationwide Affiliation of Insurance coverage Commissioners ought to be aware of this report. It’s arduous to think about that is solely taking place in Florida.
Thought For The Day
“There’s a sufficiency on the earth for man’s want however not for man’s greed.”
—Mahatma Gandhi
