Home -> Law Blog Directory -> Consumer Law Blogs -> ThePopTort

Consumer Law

: ThePopTort

Insurance Monster Attacks Florida, Again!

By Joe Consumer

Florida?s demon creature, the property/casualty insurance industry, is slashing its way through the state once again.  Not like this is all that new.  But the latest development ? a new push for nearly full on deregulation - is really beyond monstrous.

This week, a bill moved out of a Florida committee that would virtually deregulate the entire industry ? some 200 plus companies.  The legislation would not only allow companies to hit policyholders (like homeowners) with enormous rate hikes and goodness knows what else coverage-wise.  It would also allow them to pocket the $12 billion worth of subsidized reinsurance the legislature provided the industry in 2006 on the condition the money be returned to consumers in savings.  This, of course, was never done. 

Incredibly, this push comes on the heels of a year-long investigation by the Herald Tribune, called ?How insurers make millions on the side?, that found that ?nearly half of Florida's home insurance is provided by companies whose primary profit comes not from insuring homes but from diverting premiums into a host of side ventures? and ?as soon as the money is moved, it is beyond the reach of homeowners who might need it to rebuild after a disaster? and then ?is also free to be paid to investors and owners as profit without interference from regulators.?  And, they note, ?Meanwhile, insurance executives complained about losses and state-mandated discounts, and pressured state regulators for permission to charge homeowners more -- even to end rate regulation altogether.?  Bingo!

We?ll just list a few more of the paper's findings:

? Overhead costs -- expenses not related to hurricanes or other disasters -- are 50 percent higher in Florida than the national average. The higher overhead cost Florida homeowners an added $900 million in 2009 alone.

? In cases where the Herald-Tribune could see both sides of the ledger, the overhead charges were inflated. Of the $72 million in management fees that Southern Oak paid its affiliate over five years, nearly half -- $35 million -- was profit, insurance regulators now say. Three other carriers paid themselves an average 44 percent profit.

? Some insurers devote so much of their premium to reinsurance and paying related companies they have little left for claims. Even in its first months of operation, state financial examiners said, American Keystone was structured to spend more than it collected.

? Insurers have contracted so much of their work to unregulated sister companies that some are essentially shell operations with few employees. Homeowners Choice, for instance, pays one affiliate to negotiate reinsurance contracts and another to manage policies, and buys catastrophe protection from a third.

? Lax state rules encourage executives to pay sister companies as much as possible. The Legislature barred regulators from requiring insurance affiliates to report their finances.

? Even while complaining of losses, Florida insurers from 2006 through 2008 paid $38 million in bonuses and $32 million in other perks to 180 of their officers.

?

"The companies are taking profits out as opposed to keeping it for future losses," said Frank Cacchione, CEO of TNC Management, a New Jersey company that sometimes audits insurers' books for private reinsurers. "When the insurance company fails, they haven't lost any money. In fact, they've made a lot of money."

No offense to Baron Frankenstein, but let?s just hope this demon creature doesn?t make it.  

Full post as published by ThePopTort on March 26, 2010 (boomark / email).