The legislation enacted by state lawmakers to tighten down on misbehaving insurance companies was tough.
Maybe a few too many.
When the law was introduced last month, a provision that would have penetrated the curtain on insurance business profits by compelling insurers to report new information to the state was met with opposition.
It was gone by the time senators unanimously passed the bill on Wednesday.
SB 7052 continues to give state regulators additional powers to investigate insurers and hold them responsible, signaling a shift in Tallahassee after years of primarily giving companies what they want in an effort to curb quickly growing premiums and a series of firm insolvencies.
However, the disagreement over a provision that targeted the business models of domestic insurers highlights the quandary that state lawmakers and regulators face as a result of the insurance crisis.
Since the devastation caused by Hurricane Andrew in 1992, the state’s insurance industry has been controlled by tiny, Florida-based insurance companies.
These enterprises drew investors because of the potential for huge earnings in storm-free years.
State regulators, who approve rate filings each year, limit insurance company profits. Many domestic insurers’ business strategies, however, center around the formation of sister and parent businesses that charge the original insurer fees.
For delivering services to the insurer, these affiliates can charge the insurance company up to $25 per policy, as well as a portion of premiums. This cost, which is typically between 20% and 30% and is allowed by regulators, is frequently linked to policyholder rates.When interest rates rise, so does the fee.
Domestic insurers were extremely profitable between 2005 and 2017, when the state saw no designated storms.
The CEO of Tampa-based Heritage Insurance Holdings earned $27.3 million in 2015, more than twice the CEO of the nation’s largest insurer, State Farm. The CEO of Universal Insurance Holdings, based in Fort Lauderdale, was the highest-paid property and casualty insurance executive in the US in 2017, earning $19.3 million.
State regulators, on the other hand, have consistently identified excessive payments to affiliate corporations as a reason insurers are failing.
When Tampa-based Homewise Insurance Co. and one of its affiliates went insolvent in 2011, for example, auditors hired by the state dug into the company’s books. They found tens of millions of dollars in fees paid to its parent company each year.
“The heavy flow of cash out of the Company … weakened both insurance companies and ultimately contributed to their insolvency,” auditors wrote.
The initial version of SB 7052 would have provided unprecedented insight into insurers and their affiliate companies. Companies would have been required to report to the state:
- the “actual cost” of each service provided by an insurer’s affiliate company
- the relative financial condition of the insurer and its managing company
- the amount of dividends paid by the parent company
The language was dropped during negotiations with the House and Senate, however.
The Senate bill sponsor, Sen. Travis Hutson, R-Elkton, said both sides agreed that they didn’t want to do anything to “upset the apple cart” of Florida’s insurance industry. And that included not challenging the industry’s business model.
“We’re trying to make sure the business model can stay intact, but the bad actors we’re going to go after,” he said.
Both chambers agreed to compel insurers to use “best practices” for managing claims in exchange for removing the reporting requirements, according to Hutson. Companies would be required to establish and use claims-handling guides, as well as allow the Office of Insurance Regulation to request them.
The Act also provides the agency expanded investigative powers, significantly boosts fines against insurers, and forces regulators to disclose their actions against insurers to the Legislature on a regular basis.
The law was passed by the Senate without debate on Thursday. It is anticipated to be debated in the House next week.
Insurers have privately opposed the bill.
Mark Friedlander, Florida spokesperson for the industry-backed Insurance Information Institute, said the bill “appears to be a direct response to negative feedback some legislators have received from their constituents” about the bills passed by the Legislature last year. The bills made it harder to sue insurance companies and dedicated $3 billion to help insurers.
Friedlander said last year’s bills will create a more stable insurance market and “more competitive pricing.”
According to Hutson, several of the modifications were requested by the state’s new insurance commissioner, while others were prompted by news coverage of the state’s insurance crisis. The new regulation would also require insurers to disclose any changes to an adjuster’s report and give the name of the person who authorized the modifications, in response to a Washington Post story published last month in which adjusters claimed their reports were falsified to limit homeowner payouts.
“We want to make sure the insurance company is treating the consumer fair,” Hutson said. “If they’re not treating the insured fair, then it’s a problem. … They should get severely penalized.”