Florida's New Bill Aims to Regulate Property Insurance Affiliates

A legislative proposal in Florida seeks to enhance transparency on the financial practices of property insurance companies regarding transactions with their affiliated entities. On Wednesday, a House committee moved forward with HB 1399, legislation intended to impose stricter disclosure demands on insurers about their affiliate dealings, ensuring these arrangements remain equitable for policyholders. Currently, state regulators regulate insurers’ profit margins and approve rate increases but have limited oversight concerning affiliated entities within the same corporate structure. Industry practice has often involved insurance executives setting up affiliated companies that provide essential services, such as claims processing and reinsurance, often at elevated rates compared to unaffiliated third-party providers. The strategy of using managing general agents as affiliates has been customary in the industry for decades. However, this practice has sometimes contributed to the insolvency of insurance companies in Florida. A significant disclosure arose last year when the Herald/Times revealed a previously undisclosed state-commissioned report examining the financial performance of insurers and their affiliates. The study indicated hefty losses for insurance companies contrasted with significant profits for their affiliates between 2017 and 2019. The research highlighted that, while insurance firms reported a combined loss of $432 million, the affiliates’ collective profit amounted to $1.8 billion in the same timeframe. Additionally, insurers declared $680 million in dividends to shareholders. The report author noted that many affiliate relationships might not align with the state’s standard for being “fair and reasonable,” although this term lacks statutory definition. This year’s bill, introduced by Rep. Kim Berfield, proposes more detailed reporting requirements from insurers, focusing on the true cost of services and shareholder dividends related to affiliate dealings. The legislation would automatically conclude contracts between insurers and affiliates after a three-year period, and it mandates that dividends receive approval from the Office of Insurance Regulation. Additionally, if any payments to affiliates are deemed inappropriate, they would need to be reimbursed to the insurer. The measure received unanimous support in committee, although concerns were voiced regarding potential cost implications for insurance companies that might affect consumers. Rep. Toby Overdorf expressed apprehensions about increased regulatory expenses, while Rep. Hillary Cassel argued that curbing affiliate excesses could ultimately reduce costs for homeowners. Rep. Kim Berfield has engaged in discussions with industry stakeholders about this initiative. However, as of Wednesday, there has been no companion bill introduced in the Senate, which could impact the legislative progress.