Do insurers funnel Florida funds to parent companies while claiming need to raise rates?
Wake up and good morning. Remember when Florida’s elected leaders used to stand up against the property insurance industry’s relentless drumbeat that higher rates were the only answer to “fixing” this state’s crumbling homeowners’ insurance problems? Even after what is four-plus years with no hurricanes, the insurance industry’s mantra is unchanged: We are not charging enough and woe to Florida when a big hurricane hits.
In the war of attrition, it’sFlorida insurance industry: 50. State government: 0. Even Gov. Charlie Crist, who built part of his “I want to be your governor” campaign on fighting property insurance demands for more, more, more has mentally moved on. And state legislators, increasingly pro-business, are too busy introducing measures to weaken state insurance regulation and give insurers more leeway in charging what they want. Welcome to government by attention deficit disorder.
Which makes for an interesting historical backdrop to an analysis by the South Florida Sun Sentinel. The newspaper found that while Florida property insurers press state legislators to allow them to raise rates without regulator approval, citing losses in recent years, many are funneling fees and payments to unsupervised affiliates — money that could have been used as reserves against claims from storms. Here’s the key detail:
“A Sun Sentinel review of 26 Florida-based insurers found that the companies collectively reported a $87.8 million drop in claims-paying reserves last year and a $206.9 million underwriting loss, incurred when premiums don’t offset expenses.
“Yet, all but four paid a total of nearly $300 million last year to managing general agents, or MGAs, that were affiliates.”
The affiliates provide legitimate services to the Florida insurer — to a point. Critics say some of these payments are inflated. And once these funds end up with an affiliate, they can easily be funneled to the parent company which can do whatever it wants — including paying these funds out to shareholders as dividends.