Investigative reporter Lawrence Mower deserves some kind of award and thanks. His work has unveiled a deeply regarding sample inside Florida’s insurance coverage trade, famous within the story: Secret Research 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 buyers, 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 vital sums from their corporations, typically in violation of state laws. This monetary maneuvering left many insurers in a weakened state, probably jeopardizing their skill to meet claims through the state’s escalating insurance coverage disaster. Alarmingly, this report was by no means shared with state lawmakers, elevating questions concerning 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 Hundreds of thousands 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 deal with the trade’s monetary woes. Nevertheless, the revelations of undisclosed earnings being funneled to associates forged severe doubt on the legitimacy of the trade’s claims of monetary misery. A coordinated narrative of monetary instability was doubtless employed to govern legislative outcomes, leading to legal guidelines that disproportionately favor insurers on the expense of policyholders.
Why didn’t then Insurance coverage Commissioner Altmaier increase 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? May or not 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 geared 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 govt compensation and revenue allocations. This initiative represents an important step towards dismantling the key organizational constructions which have lengthy enabled insurers and their executives to obscure their true monetary place and earnings.
The key report exhibits the Florida insurance coverage trade has operated below a veil of monetary manipulation, making it more and more tough for regulators and policyholders to grasp the true monetary well being of insurers. The important thing tactic entails artificially inflating insurer bills by shifting earnings to affiliated corporations via 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 via 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 on the point of insolvency or merely engaged in subtle accounting practices to divert income. The shifting of earnings via these affiliate transactions not solely distorts monetary statements however also can affect rate-setting choices. Insurers who look 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 affect oversight—it instantly 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. Fee approvals are decided primarily based on an insurer’s monetary want. By artificially inflating bills via extreme affiliate charges, insurers can safe fee will increase which can be neither truthful nor vital.
Along with inflating policyholder premium prices, these monetary ways 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 via inflated affiliate charges as an alternative of distributing earnings via conventional dividends—which might be topic to regulatory scrutiny. This follow retains earnings exterior the attain of regulatory oversight and permits insurers to divert funds in methods that will not profit policyholders. The difficulty turns into much more regarding when affiliated corporations are primarily based out of state or offshore, making it almost unimaginable to trace the place the cash goes and whether or not it should stay out there 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 constructions to defend earnings, regulators have completed little to rein in these abusive monetary practices. One purpose for this failure may very well be the affect of trade 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 “truthful and cheap” charge construction. With out these clear tips, insurers are free to cost no matter they want 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 energy of his workplace in order that he has the facility to research and report on these shady actions.
This regulatory failure factors to a deeper concern of trade affect over state oversight. The insurance coverage foyer exerts vital energy in Tallahassee. I’ve lengthy argued that Florida’s insurance coverage regulatory surroundings has been compromised by these with a vested curiosity in supporting regardless of the insurance coverage trade needs. The result’s an trade that cries monetary hardship whereas quietly funneling billions into affiliated companies and buyers, leaving policyholders to pay the worth within the type of larger premiums, decreased 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 consider our efforts when debating these points within the press and in testimony with then Commissioner Altmaier, figuring out that he was not totally explaining the precise state of affairs.
Whereas not raised within the article or the report, the reinsurers are one other group that needs to be investigating and seeking to recoup cash. The reinsurance market is owed an obligation of utmost good religion and truthful dealing, which signifies that bills needs to be reputable and never go into the pockets of insurers’ executives via illegitimate bills.
One remaining query is how far these insurance coverage trade ways are entering into different states. Definitely, the Nationwide Affiliation of Insurance coverage Commissioners ought to be aware of this report. It’s exhausting to think about that is solely occurring 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