As Florida’s homeowners struggle with rising insurance premiums and policy cancellations, new revelations have emerged that shed light on the underlying causes of the state’s insurance market turmoil. A previously undisclosed study has revealed that while insurance companies publicly claimed financial hardship following major hurricanes, behind the scenes, their affiliate and parent companies were quietly making billions.
The Hidden Story Behind Florida’s Insurance Crisis
Between 2017 and 2019, after hurricanes Irma and Michael devastated Florida, insurers reported significant financial losses to justify raising rates. These claims of financial distress fueled state lawmakers to implement legal reforms that made it harder for homeowners to sue insurance companies, under the guise of stabilizing the market.
However, a confidential study—delayed for two years before its release—reveals a different reality. During the same period that insurers were publicly citing losses, these same companies funneled billions of dollars to affiliate organizations and paid out $680 million in dividends to shareholders. The report indicates that some insurance companies moved so much money out of their coffers that they may have violated state financial regulations designed to ensure their solvency.
These financial maneuvers left some insurers weakened just as Florida’s insurance crisis deepened, leaving homeowners vulnerable and potentially without the necessary financial protection to rebuild after disasters.
How Insurance Companies Shifted Money
Florida-based insurance executives have found ways to move money within complex networks of affiliated companies—sister organizations owned by the same parent company. Here’s how the system works:
- Limited Profits on Insurance Policies: State regulations cap insurance companies’ profits at around 4.5%, designed to protect consumers from price gouging.
- Unlimited Profits for Affiliates: While insurance company profits are regulated, their affiliates—companies handling services like underwriting, claims management, and accounting—face no such restrictions.
- Service Overcharging: These affiliates often charge the insurance company inflated fees for basic services, allowing executives to extract profits beyond state-imposed limits.
For example, when FedNat Insurance went insolvent in 2022, it was part of a larger web of nine corporations. Similarly, Southern Fidelity Insurance was linked to multiple affiliates, including one that spent $485,000 annually maintaining a hunting lodge, an expense that regulators later scrutinized.
The Alarming Financial Reality
The study’s findings paint a stark picture of how profits were redirected:
- Reported Insurance Company Losses (2017-2019): $432 million
- Affiliate Profits in the Same Period: $1.8 billion
- Total Industry Net Income (Including Auto Carriers): $61 million for insurers and $14 billion for affiliates
The investigation found that nearly two-thirds of Florida-based insurers paid affiliate companies fees that were deemed “not fair and reasonable,” undermining the financial stability of the insurance companies themselves.
Regulatory Gaps and Legislative Failures
Despite these alarming findings, Florida lawmakers and regulators have done little to address the issue effectively. The Florida Office of Insurance Regulation (OIR) acknowledged the irregularities but argued that the study was never presented to lawmakers because it was classified as a draft and not a formal examination.
During legislative debates from 2018 to 2023, lawmakers overlooked the growing role of affiliate companies. Many cited a lack of solid data when enacting reforms—data that was later revealed to have been available but withheld.
Efforts to regulate these practices have also faced resistance. In 2023, Florida regulators proposed defining “fair and reasonable” fees as the actual cost of services provided, factoring in the health of the insurer and dividend payouts. However, lawmakers rejected the proposal, citing concerns about destabilizing the insurance market.
The Bigger Picture: A System Ripe for Abuse
The financial structure of Florida’s insurance industry has created opportunities for exploitation:
- Incentive for Overcharging: When executives control both the insurance company and its affiliates, they have an incentive to overcharge for services, draining the insurance company’s funds while enriching the affiliates.
- Contributing to Insolvency: Financial abuse by affiliates has been linked to insurance company failures. A 2009 insolvency report highlighted that executives were “stripping the company of cash” as it went under.
- National Trends: A report by AM Best found that affiliate relationships were the third-leading cause of insurance insolvencies nationwide between 2000 and 2022, following catastrophic losses and fraud.
What’s Next for Florida’s Insurance Market?
In 2024, Florida regulators proposed new legislation to address these financial loopholes. Key reforms include:
- Defining “fair and reasonable” fees for services based on actual costs, company financial health, and dividend payouts.
- Requiring affiliate fees to be paid in dollar amounts rather than percentages of premiums to prevent disproportionate increases when rates rise.
- Increasing transparency in agreements between insurance companies and their affiliates.
While regulators have canceled or modified some affiliate agreements, much work remains to restore stability and protect policyholders from future financial exploitation.
A Call for Accountability
The recent revelations raise critical questions about accountability in Florida’s insurance industry. Many homeowners, already grappling with skyrocketing premiums and diminished coverage, are left wondering why state regulators and lawmakers allowed this financial manipulation to persist for so long.
As Florida continues to navigate its insurance crisis, increased oversight, transparency, and stronger legal protections are essential to ensure that insurance companies operate in good faith—and that homeowners receive the protection they pay for.
Today’s Insight:
“Power tends to corrupt, and absolute power corrupts absolutely.”
— Lord Acton