Regulatory Oversight Proposal for Property Insurance Companies in Florida
A new legislative proposal could heighten regulatory oversight on the financial interactions between property insurance companies and their parent or affiliate organizations. Under this proposal, these transactions, sometimes used to obscure profitability figures and warrant premium hikes, would undergo more rigorous review by state regulators, as indicated by the unanimous approval from a House insurance committee.
The legislation, introduced by Representative Kimberly Berfield, seeks to implement recommendations from a recent study conducted by Risk & Regulatory Consulting LLC. This study analyzed data from 2017 to 2019, a period marked by significant hurricane activity, such as Hurricanes Irma and Michael, during which numerous insurers cited financial losses to justify rate hikes.
According to the study, 19 insurers in Florida diverted billions of dollars via fees to holding companies and affiliates. These payments were not always considered "fair and reasonable" under established industry standards, complicating the Office of Insurance Regulation's (OIR) ability to accurately assess the financial stability of these insurers. The companies involved were not specifically identified in the study.
Legislative Proposal Details
House Bill 1399 stipulates that insurers must document and submit financial interactions with affiliates every three years to the OIR to confirm the fairness of such transactions. This legislative effort, passed 17-0 by the Insurance and Banking Subcommittee, is en route to the Commerce Committee and awaits further examination by the full House. A parallel Senate bill, introduced by Carlos Guillermo Smith, has not yet advanced in Senate committees.
Rep. Yvonne Hinson inquired about the potential for premium cost reductions for policyholders. Berfield responded, affirming the bill's intention to ensure insurance premiums are used appropriately, thereby preventing unjust rate increases. Additionally, Rep. Hillary Cassell noted that defining "fair and reasonable" could lead to decreased consumer costs by setting clear expectations for reasonable compensations, passing savings back to policyholders.
Industry Reaction
Industry trade groups, like the Florida Insurance Council and the American Property Casualty Association, have opposed the bill but have not publicly explained their objections during the legislative discussions. The underlying study highlighted prevalent industry practices where insurers leverage separate affiliate entities for services like claims management and IT support while maintaining distinctions between these functions and direct underwriting operations reporting financial losses.
To stay informed about developments in Florida property insurance legislation and industry practices—particularly the impact of AI-driven prior authorization delays and regulatory compliance requirements—insurance professionals should monitor this bill's progress. Consider its potential impacts on company operations and policyholder premiums for a comprehensive understanding of future industry challenges.