A new investigation into Florida’s property insurance industry is set to begin, raising significant questions about insurer profitability, financial transparency, and the true reasons behind skyrocketing premiums for policyholders. As reported by Lawrence Mower in Florida House to Investigate Whether Property Insurers Hid Profits With Accounting Tricks, the Florida House of Representatives is launching a probe to determine whether property insurers have been using accounting maneuvers to mask their profits while simultaneously justifying rate hikes.
For years, Florida policyholders have faced steep increases in property insurance premiums, with insurers blaming rising litigation costs, fraud, and natural disaster risks. However, the Florida House’s recent move suggests there may be more to the story. Lawmakers want to know whether insurers have been shifting money within their corporate structures—possibly to affiliated reinsurance companies or other entities—to make their primary insurance businesses appear less profitable than they actually are.
I and other insurance industry critics argue that some Florida insurance companies have exploited complex accounting tactics to siphon off profits while portraying themselves as struggling businesses. If true, these financial strategies could be artificially inflating the need for higher premiums and misleading both regulators and consumers about the financial health of the industry.
This is not a new scheme. In 2008, I wrote Insurance Industry Claims And Rate Practices Come Under Public Scrutiny, and noted the following:
Robert Hunter has long studied and criticized many activities of the insurance industry. He is an actuary by trade, a former insurance commissioner, and serves as the Insurance Director for the Consumer Federation. Florida Insurance Commissioner Tom McCarty asked Hunter to testify about the “duping” and alleged misinformation generated by insurance industry trade associations. Hunter provided a lengthy report: Property/Casualty Insurance in 2008: Overpriced Insurance and Underpaid Claims Result in Unjustified Profits, Padded Reserves, and Excessive Capitalization, J. Robert Hunter, January 10, 2008. He detailed and provided evidence that the insurance industry has made significant profits and continues to do so despite providing alleged propaganda trying to demonstrate otherwise.
My impression of his testimony is that insurance company executives try to hide true profits being made to keep rates as high as possible. Hunter essentially indicated that insurance company management lied in its filings and practices. At one point, he called the activities possibly ‘illegal’ when Senators were questioning if criminal activity occurred. From experience, most honest people and corporate representatives openly discuss and show documents when authorities demand answers and proof of activities. Dishonest people and entities hide and try to avoid directly answering the same because guilt would be admitted. Anybody watching Allstate answering and avoiding production of requested information last week during the Office of Insurance Regulation hearing has to have an impression that Allstate is hiding something really bad.
One of the primary areas of focus of the current investigation will likely be the relationship between Florida-based insurers and their affiliated reinsurance entities. Many insurers purchase reinsurance from companies they are financially connected to, allowing them to shift premiums and potentially obscure true profits. This practice raises concerns about whether these insurers are gaming the system—paying inflated reinsurance prices to related entities while passing the cost onto consumers.
Florida lawmakers and consumer advocates have long suspected that internal financial arrangements between affiliated companies may be a key factor behind the relentless rate increases imposed on homeowners. The upcoming investigation aims to bring transparency to these transactions and determine whether legislative or regulatory changes are necessary to protect policyholders from unfair pricing practices.
If the investigation confirms that insurers have been manipulating their financial reporting, it could trigger a wave of reforms. Lawmakers may push for increased oversight of insurer financial practices, stronger consumer protections, and potential legal consequences for companies found to have misled regulators.
For Florida homeowners already burdened by high insurance costs, this inquiry offers a glimmer of hope. If insurers are found to be engaging in deceptive financial tactics, state officials could take steps to ensure that rates are set more fairly.
Insurance regulators must demand and receive transparent, honest financial reporting from insurance companies to properly determine if the requested rate is fair. Policyholders deserve to know whether their rising premiums are genuinely justified by increased risks and losses or if they are the result of hidden corporate profit strategies.
Thought For The Day
“We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.”
—Plato
