Lawmakers grill Florida regulators about study on insurance ‘accounting tricks'
TALLAHASSEE — State regulators told lawmakers on Friday that a state report showing insurers losing money while their affiliates made billions 'raised red flags' but was incomplete because it was never finished.
During a three-hour hearing, Florida's current and former insurance commissioners were grilled by Republicans and Democrats about why the report was left undone in 2022 and never given to the Legislature.
'I find as a legislator that that's outrageous, that we're getting something so antiquated and so full of flaws,' said Rep. Mike Caruso, R-Delray Beach.
The Times/Herald last month revealed the never-before-seen state report, which found that insurance companies funneled billions of dollars to affiliate companies while claiming to lose money between 2017 and 2019, when the state's insurance crisis began.
In response, House Speaker Daniel Perez, R-Miami, ordered a House committee to investigate whether insurers were using 'accounting tricks' to hide profits.
The first-of-its-kind study was commissioned by former Insurance Commissioner David Altmaier in 2021, after hearing concerns about insurers' use of affiliate companies.
Insurers create affiliates that charge the insurance company for basic services, such as handling claims and writing policies, at sometimes inflated rates — allowing them to extract profits beyond what state regulators would normally allow.
The state paid a consultant $150,000 to analyze the relationships. The consultant gave the report to the state on April 1, 2022, according to emails.
The results 'certainly raised some red flags,' Altmaier told lawmakers.
'I think what we said was, There's a lot of smoke here, and we need to make sure we go and see if there's a fire burning or not,' Altmaier said. 'That was the effort I thought was underway when I left the office.' He left the office in December 2022.
But the office never investigated further. Instead, the report was left in a 'draft' form and never followed up.
Lawmakers repeatedly asked how that could happen.
'Why did the investigation stop?' said Rep. Susan Valdés, R-Tampa. 'Who made that decision to say, 'This isn't important enough'?'
'I would say nobody made that decision,' Altmaier said. 'Candidly, when I was asked to come and speak here today, that's the one question that I haven't been able to come up with an answer to.'
Altmaier, who began consulting for insurers three months after leaving office, said he didn't recall telling his successor, Office of Insurance Regulation Commissioner Mike Yaworsky, about it.
'Hindsight being 2020, if I could go back and do it all over again, maybe I would call him and said, 'Don't forget to finish that report,'' Altmaier said.
Yaworsky said it could have been dropped because regulators were understaffed and dealing with the height of the insurance crisis that year. Lawmakers met twice in emergency legislative sessions in 2022, after the report was produced, to pass reforms making it harder to sue insurance companies.
Some lawmakers at the time questioned the role of affiliate companies in the insurance crisis.
The Times/Herald first requested the report under the state's public records law in November 2022.
Yaworsky said he wasn't aware of the report until October 2024. That's when a lawyer for the Times/Herald demanded the state turn it over.
The office told the Times/Herald's lawyer that it did not exist, before providing the report's seven-page executive summary in December last year.
Multiple lawmakers asked Yaworsky about why it took the office more than two years to turn over the records. He said he didn't know, but that he took 'ownership' for the shortfall and that the office has since streamlined its responses to records requests.
Yaworsky and Altmaier said the report was never given to lawmakers because it wasn't complete.
The report was produced by a consultant for $150,000. The author determined that the insurers in the study, minus a couple of national outliers, showed a net loss of $432 million, while their affiliate companies showed a net income of $1.8 billion. The insurers also spent $680 million on dividends to shareholders during the period.
The result left some insurers financially weaker and potentially unable to pay claims, but able to justify bigger rate increases.
The author of the report concluded most of the arrangements between Florida-based insurance companies and their affiliates were not 'fair and reasonable' under her understanding of state regulations.
Yaworsky said the report 'was a good initiative by the office' to better understand the industry, but he disagreed with the author's methodology.
'It doesn't mean the conclusions are wrong or incorrect,' he said.
It was also flawed, Yaworsky said, because 23% of insurance companies either did not respond to the office's request for information or provided limited data.
The state hasn't renewed the analysis since, but Yaworsky said he would 'happily' do it each year if legislators wanted it.
'I think we're all screaming for it,' Caruso responded.
The House Insurance and Banking Subcommittee will continue to hold hearings, including potentially hearing from insurance company executives, said chairperson Brad Yeager, R-New Port Richey.
'I won't be satisfied until we get to the actual truth and get answers on this,' Yeager said.
Insurance companies' improper use of affiliates, some of which are referred to as 'managing general agents,' have been cited in numerous company insolvencies in the past.
In 2013, the Office of Insurance Regulation fined Universal Property & Casualty Insurance Co. $1.3 million in part because one of its affiliates made $44 million in profit while Universal lost money.
'If you are a commissioner of insurance, and you don't have a concern about perverse incentives that can exist in holding company arrangements, MGAs (managing general agents) and affiliated transactions, then you shouldn't have the job,' Yaworsky said. 'It is constantly on my mind.'
Since 2022, the office has pushed for more oversight of those affiliate companies, but lawmakers haven't granted some of the tools the office has requested. Yaworsky is again asking to define 'fair and reasonable' services in state statute, which would allow him to hold companies accountable.
But Yaworsky said none of the insolvencies in recent years have been due to affiliate relationships. He and Altmaier said excessive litigation, storms and rising costs were why companies went out of business.
Ultimately, Florida's one of the most volatile insurance markets, Yaworsky said, and agreements with affiliates is the business model companies have found to attract investors.
'How many of you would like to invest that $100 million into a Florida domestic property that you may never get back?' he asked.
Rep. Karen Gonzalez Pittman, R-Tampa, raised her hand.
'After reading the report about the MGAs (managing general agents), I'd want to invest.'
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