As Florida lawmakers demand answers about a report showing property insurers offloaded money to affiliates while claiming financial hardships, an independent ratings agency has issued a new analysis stating the practice has increased recently.
In 2023, the most recent year for which data are available, Florida-based insurers under the control of state regulators transferred $1.8 billion to affiliate companies for expenses and $335 million to shareholders through dividends, according to Weiss Ratings of Palm Beach Gardens, Florida. That means a total of $2.1 billion was unavailable to pay claims to customers, Weiss said.
"It doesn't seem right or fair that they're claiming poverty just to increase rates to make up for the money they are taking out of the business," Gavin Magor, director of ratings and research for Weiss, said in an interview.
Florida's insurance market has come under scrutiny in recent years after some homeowners had their rates more than double following a series of hurricanes, a major factor contributing to the state's ongoing housing affordability concerns. Before state lawmakers intervened with reforms in 2022, nearly every insurer offering residential property coverage in Florida raised rates, reduced their footprint or stopped writing new business, according to the Florida Office of Insurance Regulation.
A February story in The Miami Herald and Tampa Bay Times detailed an unreleased 2022 report that revealed how insurers moved money off their books between 2017 and 2019 while at the same time saying they were losing money, couldn't pay claims and needed to raise insurance premiums. The newspapers, working jointly, said they received the report in December after waiting two years on a public records request.
The Florida House Insurance & Banking Subcommittee has since launched an investigation. A consulting company, at the request of the Florida Office of Insurance Regulation, oversaw the report.
Companies pay dividends despite losses
Weiss' study of more recent data suggested that Florida-based insurers under the control of state regulators paid 20.4% of their expenses to affiliates, the highest rate since 2014 and four times higher than companies outside the Sunshine State. What's more, many Florida companies have paid dividends despite financial losses while almost all companies in other states pay dividends from profits, according to Weiss.
The agency went on to say there's nothing wrong with doing business with affiliates or paying dividends to investors, but these so-called Florida-domiciled companies have done both far beyond the national average.
Weiss said its study included 46 companies, representing a supermajority of firms writing homeowners policies in Florida. Citizens Property Insurance Corp., the state-run insurer of last resort, was not included because it does not report fees to affiliates or pay dividends, Weiss said.
But the Insurance Information Institute, a Malvern, Pennsylvania-based research and education group made up of insurance company members, disputes the notion that insurers aren't properly serving policyholders by offloading money to affiliates and investors.
"Insurers pay commissions and fees to managing general agents (MGAs) and affiliates, just like they do to all independent and exclusive agents that represent them in the marketplace," Mark Friedlander, the institute's director of corporate communications, said in an email. "This is standard operating procedure in the U.S. property/casualty industry. Any allegations to the contrary are false.”
He cited "man-made factors" such as legal system abuse and claims fraud, not fees and commissions paid to MGAs and affiliates, for the recent insurance crisis in Florida.
"The Florida market has stabilized due to legislative reform, and consumers are beginning to see the benefits with reduced premiums and more options for purchasing their home insurance," Friedlander said.
Weiss said it compiles its data from documents insurance companies file with individual states and the National Association of Insurance Commissioners. The company issues safety ratings on insurers, banks and credit unions.
"We have advocated for many years that insurers should retain more of their profits in the business and strengthen the bottom line," Magor said.
