What It Takes to Make Florida Officials Blush

This week, Heritage Property & Casualty Insurance Co. was seemingly shamed into withdrawing a request for a controversial 14.9 percent rate increase. The manner in which the saga unfolded is instructive as to how brazen politically-connected goldbrickers in our state have to be before someone's face finally turns red.

Formed in 2012, the company has never experienced a hurricane, and its losses on claims have been falling when examined as a share of premiums. So, why does the company need more money from the homeowners it covers? Presumably, much is owed to the cost of compensating its CEO, Bruce Lucas, who saw his compensation nearly quadruple in a single year to a cool $27.3 million.

Despite being completely untested in dealing with hurricanes, the Clearwater-based company is the fastest-growing insurer in the state, having already cracked the top five with over 266,000 policies. How has it done so well, so quickly? Not by marketing its product to eager customers, it would seem.

Over 84 percent of its policies have come from state-facilitated transfers, including a huge chunk of Citizens takeout offers. Meanwhile, only around 15 percent have arrived actively, by choice, from the open market. So while Heritage can brag that it reported $92.5 million in net income (up 96 percent) and $395 million in revenue in 2015, it's important to look at how all of that dough came pouring in.

The company's growth can be traced to a 3-2 Citizens board vote in 2013, to award Heritage up to $52 million to take some of Citizens’ customers, even though most insurers got no special payments to take such policyholders, and the deal would circumvent the normal committee process used by Citizens. This vote came shortly after the company contributed $110,000 to Florida Governor Rick Scott’s campaign PAC, and it was a Scott-appointed Citizens board member that made the motion.

Because state regulators are not required to hold a hearing on rate increases under 15 percent, the request by Heritage to raise rates 14. 9 percent seemed designed to again circumvent public outrage. However, a number of consumer advocate groups jumped on the story, pushing it to the press, where furious consumers were soon up in arms.

The idea that an unproven private company whose claim losses are falling would need to hike rates so much, even though it can apparently pay its CEO $27 million a year, smacked of the exact same kind of rigged economy that has voters fired up this election cycle. For some perspective, Lucas' compensation is roughly 50 times what Citizens CEO Barry Gilway gets paid ($533,000 in 2015), despite the fact that Citizens has almost twice as many customers.

The outrage led to the company ultimately withdrawing its request after regulators at the Office of Insurance Regulation held discussions with the company Tuesday. The OIR was mum on the specifics of the discussions, only that it related to items within the company’s filings. The whole ordeal raises several red flags, the first of which being a system in which such an unproven company can so quickly grow into such an important part of the state’s housing economy after one vote and a political contribution.

The second is that had consumer advocates not blown the whistle on this boondoggle, it probably would have gone through. Ideally, property insurance is a heavily-regulated industry because it is one of many in which normally-functioning market dynamics are largely absent, including meaningful competition. Like most industries that have some form of anti-trust exemption, profits are regulated, ostensibly to ensure that companies do not take advantage of consumers, gouging them for their own gain.

I don’t suspect that many people who’ve ever dealt with property insurance in Florida would argue that the state has done a good job in terms of that being the case. Our rates are disproportionately high and, all too often, it has been the rubber stamp of our supposed regulators that have failed consumers the most. After Hurricane Andrew, insurers proposed a state of regular rate increases so that money would be set aside for the next big disaster, years down the road. But when the 2004 season hit, the same voices were again arguing that rates must be raised even more to accommodate for claims, seeming to forget about all of the money that had been piling up prior and remaining notably silent when consumer advocates pointed out that they were simultaneously reporting record profits to stockholders.

Then came years of reinsurance scams in which insurance companies were blaming rate increases on the skyrocketing cost of reinsurance (insurance purchased by insurers to hedge against potential losses), when it turned out they were largely buying the reinsurance policies from themselves, via offshore shell companies. The sky-high cost of homeowner insurance has a depressing effect on the rest of the economy, choking off money that would otherwise be spread out in other sectors instead of accumulating in one that is not very labor-intensive. That might be good for guys like Bruce Lucas, but it’s bad for the state’s economy and a less than equitable deal for the average Floridian.

Dennis Maley is a featured columnist for The Bradenton Times. His column appears each Thursday and Sunday. Dennis' debut novel, A Long Road Home, was released in July, 2015. Click here to order your copy.