A legislative proposal aimed at increasing state oversight of payments insurance companies make to their parent and affiliate companies has successfully cleared its first committee hurdle. The bill seeks to address concerns that these payments can obscure profits and justify rate increases for policyholders.
Key Takeaways
- A bill requiring state regulators to scrutinize payments insurers make to affiliates has passed a House committee.
- Supporters believe this measure will protect policyholders by preventing excessive fees paid to related companies.
- The proposal stems from a study that found billions of dollars in fees funneled to affiliates over a three-year period.
Increased Scrutiny for Insurer Payments
Property insurance companies may soon face heightened scrutiny from state regulators regarding payments to their parent and affiliate companies. Critics argue that these transactions can be used to mask profits and inflate rate hike justifications. The bill, championed by Representative Kimberly Berfield, aims to curb this practice.
If enacted, the measure would require insurers to submit records every three years to the Office of Insurance Regulation. These records must demonstrate that all fees, commissions, or payments to affiliates are "fair and reasonable" according to industry standards. This definition of fair and reasonable would consider factors such as the cost of services provided by affiliates, the financial health of the insurer and its affiliates, dividend payouts, and whether payment contracts benefit the property insurer and its policyholders.
Study Findings and Legislative Action
The bill is a direct response to findings from a study conducted by Risk & Regulatory Consulting LLC. The study, which covered the years 2017 to 2019 following hurricanes Irma and Michael, revealed that 19 insurers funneled billions of dollars in fees to holding companies and other affiliates. These payments were found not to be "fair and reasonable," potentially clouding regulators’ ability to assess the insurers’ true financial health. The study indicated that insurers paid investors $680 million in dividends and received $951 million in capital contributions from affiliates during this period.
The House Insurance and Banking Subcommittee voted unanimously, 17-0, to advance House Bill 1399. The bill is now headed to the Commerce Committee before a potential vote by the full House. A companion bill has been filed in the Senate.
Potential Impact on Policyholders
Supporters of the bill, including Representative Berfield, emphasize that it will ultimately benefit policyholders by ensuring that premiums are used for their intended purpose. "And that is probably the best way we can make sure that we, as individuals, or our constituents, are not charged a higher rate or not taken advantage of in any way," Berfield stated.
Other lawmakers, like Representative Hillary Cassell, believe defining "fair and reasonable" will be transformative for consumers, leading to tangible savings. Consumer advocacy groups have also lauded the bill, asserting that homeowners have a right to trust that state regulators are verifying insurer solvency and preventing excessive affiliate payments that could impact claim payouts.
Industry Opposition and Existing Authority
Representatives from industry trade organizations, the Florida Insurance Council and the American Property Casualty Association, have expressed opposition to the bill via comment cards, though they have not elaborated on their reasoning. Insurers have previously argued that payments to affiliates are standard industry practice and that the Office of Insurance Regulation already possesses the authority to review their operations.
However, the study suggests that many Florida insurers’ financial claims may not fully reflect their actual situation. The research indicated that while insurers might show losses in their underwriting functions, related affiliate activities often generate profits. Currently, regulators lack the authority to incorporate affiliates’ financial records when evaluating the justification for rate increases.
If enacted, the bill would impose penalties for violations, including administrative fees of up to $10,000 per violation and potential license revocation for insurers.