Florida Legislature Gearing up for Giveaways to Home Insurers

There have been three consistent themes to this legislative session: disempowering teachers, deregulating industry and helping special interests make more profits. No industry bilks the Florida taxpayer out of more money annually than home insurers and a series of bills in the legislature form a holy grail of wet-kiss legislation that will allow them to push their ”earnings“ through the stratosphere.

In the wake of the horrific 2004-2005 hurricane seasons that included an unprecedented cluster of major storms like Katrina and Charlie, insurance companies shocked the public by posting record profits. Their game plan was relatively simple: raise rates under all circumstances and get states to allow them to drop any sort of coverage that carries real risk.

By and large, they were successful. After Hurricane Andrew in 1992, the industry sold the state on a model of continuously raising rates, even when there were no major storms, in order to be "prepared" for the next monstrous event. When it arrived, they flipped the script and returned to raising rates even higher to "recoup the losses." So good year or bad, you pay more – a pretty good model, profit wise.

Part of the current problem is that it has become very difficult to tell how much money these companies are making. They are often able to show small profits or even losses in a state like Florida, but then turn around and report glorious news to their shareholders. One of the reasons is re-insurance. Just like a bookie likes to lay-off some of his action to hedge big bets, insurance companies routinely purchase re-insurance to limit exposure when the stakes get high. The problem is that they are increasingly buying much more than they would seem to need and even more troubling – they're buying it from themselves!

It has become a rather routine practice for insurance companies to set up offshore and unregulated subsidiaries that portend to sell re-insurance. Because the market is largely out of the reach of regulators, they can get away with paying too much for it. Why would they want to do that? Because the "re-insurer" is often nothing more than an account where such payments are made, only to be returned to the parent company who owns both the insurer and the re-insurer in the form of pure, unregulated profit.

This allows the insurance company to cry poor to the state legislature, while the parent company claims that "other lines" and "above average returns on investments" are responsible for their bloated profits in the face of skyrocketing rates. If your other lines are a guy in an office in Honduras who collects money and then sends it back to you with little to no overhead, and your investments are in companies that write such "lines" of insurance, then yes, I suppose record profits are not very surprising and can manage to prop up your "unprofitable" property insurance subsidiaries.

One might ask why not sell the losers off and just keep the cash cows – until they realized that the whole shebang is a billion dollar shell game. A recent in-depth investigative series by the Sarasota Herald Tribune reported that 2/3 of property insurance premiums leave Florida in the form of unregulated re-insurance payments – while the regulated companies here in the state are sometimes tiny and inexperienced operations insuring billions of dollars of property with just a few million in the bank. In the event of a major storm, they'll quickly go belly up should the unregulated offshore re-insurers fail to pay up – and it will be consumers with leaky roofs and flood damaged homes who suffer, while the someone is drinking umbrella drinks in Monaco.

If that wasn't a sweet enough system, the property insurance companies are now gearing up for an even bigger payoff from the citizens of Florida. Here are a couple of fast moving bills currently in the Florida Legislature that would be something of a license to print money were they to pass – which it seems fairly certain they will.

SB 1330/HB 0885 takes away the Office of Insurance Regulation's ability to approve rate hikes and allows companies to increase rates by 30 percent or less each year without that oversight! I wonder how few will find justification for such hikes without the legislature having to answer for each one?

SB 408/HB 803 strikes the requirement that companies provide sinkhole coverage, shortens the time period for claim filing and cuts up-front claims. Sinkholes have become a major issue in Florida and many experts fear they will become increasingly problematic due to the stress of development and well water harvesting. This is a great time for insurers to get out of selling it altogether and simply cherry pick the kinds of coverage that carries the least risk, especially when they can guarantee the profit.

SB 1592/HB 1187 limits a consumer's ability to sue his or her insurance company, because hey, if you can't sue us when we screw you over, you can just rely on our sense of fairness and decency. Our profits are much more predictable without all of those pesky litigation expenses when we don't act justly in processing claims.

SB 1462/HB 4115 denies the state's Insurance Consumer Advocate from giving grades to insurance companies on things like timeliness of paying claims and other customer service related issues because hey, why should consumers have access to such information before making decisions about important and difficult to understand products that affect their financial well being?

SB 1714/HB 1243 allows Citizens Property Insurance Corp., the state's insurer of last resort to raise its rates as high as 25 percent annually because if the private insurers can go up 30 percent, it's only fair to keep the alternatives in the same ballpark, right?

Everyone knows that Florida has been hit particularly hard by the 5-year real estate downturn that has yet to turn around or even show signs of recovery. Foreclosures are abundant and piling more expenses onto mortgaged homeownership all but guarantees that it will only get worse, and that the price recovery and stabilization of the real estate market needed for a meaningful rebound will be that much harder to achieve.

Former Insurance Consumer Advocate Sean Shaw told me that he's never seen a series of laws of any kind so clearly written by lobbyists of an industry, rather than legislative staff. He called it "every possible thing on their wish list" in one session and warned that the impact on consumers would be catastrophic.

I hope Floridians are listening, and I hope they demand that their representatives look out for them rather than the bottom line of an already obscenely profitable industry. What is the sense of promised property tax relief that will defund education in our state, if the expense is just being shifted (and added to) in order to fatten the bottom line of insurance companies? That sounds like the redistribution of wealth to me – something the Republicans who control the legislature claim to be religiously opposed to. I guess we'll see where they really go to church when it's time to vote on these bills.