Florida insurance regulator examines finances of insurers, affiliates

The Florida Office of Insurance Regulation has begun using a “targeted examination” on 60 insurers and their corporate affiliates to review the finances of many domestic property insurers.

“As always, [the Office of Insurance Regulation]’s main focus is to foster a stable and competitive insurance market and engage in regulatory activities to protect consumers,” Alexis Bakofsky, spokeswoman for the Florida Office of Insurance Regulation (OIR), told the Tampa Bay Times.

The Florida OIR’s inquiry examines the money flow between the insurers and their corporate affiliates. It has been eight years since a similar inquiry was launched.

Early this year Demotech Inc., a private rating agency, threatened to downgrade the financial health scores of property insurers, the Tampa Bay Times reported. Substantial rate hike requests followed to cover growing legal costs, reinsurance rates and storm claims that kept coming years after the storms.

The inquiries look to insurers that are under larger holding companies. A managing general agent may be part of the corporate structure. This agent provides services such as administering and underwriting policies.

These managing affiliates can pay out dividends faster than an insurer under state law and prove to be a source of income. They can charge up to $25 per policy plus a fee to provide services to the insurer. Often that fee gets tied to policyholder rates – which means the fee rises whenever rates get raised, Mark Friedlander, Florida representative for the Insurance Information Institute, told the newspaper.

This business model can be legitimate, but cases have been known where insurance executives and shareholders charge excessive fees through the affiliates for their own payouts.

“The one that’s the poster child for this is Poe,” Sean Shaw, the former insurance consumer advocate, told the Tampa Bay Times.

Former Tampa Mayor Bill Poe founded Poe Insurance Group, which included Southern Family, Atlantic Preferred and Florida Preferred. After the 2004 and 2005 hurricane seasons, they were unable to pay claims.

But the state sued Poe, as it claimed executives and shareholders received millions of dollars at the same time their companies failed to pay $850 million in claims – funds recouped by sharing the charge among all state ratepayers.

The Florida OIR sent insurers a letter on July 30 asking them how much their affiliates received in providing services, and what office space insurers gave them without charge.

Paul Handerhan, president for the Federal Association of Insurance Reform, told the Tampa Bay Times that this oversight might help catch any problems early.