Florida’s Insurance “Losses”: Was the Public Sold a Shell Game?
For years, Floridians were told that the property insurance industry was in crisis because insurance companies were losing enormous amounts of money. Litigation was blamed, attorneys were blamed, contractors were blamed, Assignment of Benefits was blamed, and policyholders who challenged claim decisions were increasingly portrayed as part of the problem. Those arguments helped create the justification for some of the most significant changes to Florida property insurance law in decades. Lawmakers ultimately restricted or eliminated protections that policyholders had relied upon when disputes arose with their insurance companies. Newly disclosed information concerning the financial relationships between Florida insurers and their affiliated companies now raises a serious question about the foundation of that debate: Were Floridians ever shown the complete financial picture?
According to reporting by the South Florida Sun Sentinel and Orlando Sentinel, a state-commissioned analysis examined 53 Florida property insurers and their transactions with affiliated companies. The analysis reportedly found that, excluding several outliers, the regulated insurance companies reported approximately $432 million in losses from 2017 through 2019 while affiliated companies generated approximately $1.3 billion in net income. Those figures do not establish that an insurance company violated the law, nor does the existence of a profitable affiliate automatically demonstrate anything improper. They do, however, show why examining only the regulated insurance company's reported profit or loss may provide an incomplete understanding of the economics surrounding that company.
The easiest way to understand the problem is to imagine someone owning two companies. Company A collects money from customers but pays substantial amounts to Company B for management, administration and other services. At the end of the year, Company A reports a $20 million loss while Company B reports a $50 million profit. The owner could accurately point to Company A and say that the company lost $20 million, but that statement would not explain the complete economic picture because substantial money moved from one commonly owned business to another. This is why related-party transactions deserve particular scrutiny when an insurer's reported financial losses are later used to justify higher premiums or changes to laws protecting policyholders.
The affiliated-company payments identified in the analysis make that scrutiny especially important. According to the reporting, affiliated managing general agents received amounts reportedly equal to approximately 20% to 34% of premium in some instances, while total affiliated fees could reach substantially higher percentages. An affiliated company can certainly provide legitimate services and earn reasonable compensation for those services, but the relevant question is whether those charges reflect reasonable market costs that would exist in a genuine arm's-length transaction. If a regulated insurer's expenses include substantial payments to companies under common ownership, regulators should determine whether those payments are reasonable before accepting the resulting financial loss as evidence that policyholders need to pay more.
Some of the individual examples reported from the analysis demonstrate why the distinction matters. Universal Property & Casualty and American Platinum reportedly showed combined losses of approximately $11.1 million while an affiliated company generated roughly $166 million in net income. Heritage reportedly showed losses approaching $81 million while affiliates generated approximately $174 million, and FedNat and a subsidiary reportedly lost approximately $42 million while affiliates earned at least $79.4 million. FedNat was later declared insolvent. These numbers do not prove wrongdoing, and individual insurers may have explanations for the transactions, but they reinforce the need to examine the entire corporate financial structure before drawing conclusions from the losses reported by the regulated carrier.
This becomes particularly significant because insurer financial distress was used as part of the justification for dramatically changing Florida's property insurance system. During the 2022 special session, Florida enacted SB 2-A, which made substantial changes to property insurance claims and litigation. The Legislature's own analysis identified excessive litigation as one of the problems being addressed, and the legislation eliminated the previous one-way attorney-fee structure for residential and commercial property insurance litigation. Florida also prohibited Assignment of Benefits for residential and commercial property insurance policies issued beginning January 1, 2023. Regardless of whether someone supported those reforms, the practical result was that policyholders lost protections and mechanisms that had previously existed when disputes arose with their insurance companies.
The timing of the newly disclosed financial information therefore matters. Florida's Office of Insurance Regulation commissioned the affiliated-company analysis years ago, before some of the state's most consequential property insurance reforms were enacted, yet the detailed company-level findings were not part of the public debate in the same manner as insurer losses and litigation statistics. OIR has since challenged aspects of the consultant's methodology and data validation, and those criticisms should be evaluated rather than ignored. However, if the analysis was materially flawed, transparency would provide the strongest way to demonstrate those flaws by allowing the underlying methodology, calculations and financial information to be independently examined.
The controversy surrounding the eventual disclosure only creates additional questions. According to the newspaper investigation, the Florida Senate inadvertently provided an unredacted version of the analysis while responding to a public-records request. The Senate's general counsel subsequently reportedly demanded that the newspapers stop using the information, destroy their copies, seek destruction of copies provided to others and certify that the information had been destroyed. The newspapers refused. Regardless of the legal dispute surrounding confidential or trade-secret information, the episode highlights the broader tension between protecting legitimate confidential business information and ensuring sufficient transparency when corporate financial conditions are being used to influence public policy affecting millions of Florida property owners.
This situation illustrates exactly why I have argued that Florida should require meaningful independent financial verification before approving substantial insurance rate increases based on an insurer's claimed financial condition. The proposal is not intended to arbitrarily prevent insurers from receiving justified rate increases because insurance companies must remain financially capable of paying claims. Instead, the purpose is to require verification before homeowners are asked to pay more. When an insurer claims that increased premiums are necessary because of financial losses, regulators should be able to independently determine what caused those losses and whether the expenses producing them were reasonable.
A meaningful audit should therefore go much further than confirming that numbers appearing on a financial statement add up correctly. The examination should determine how much premium was collected, how much was actually paid in claims, how much went toward reinsurance, how much was spent defending claims, how much was paid in executive compensation, and how much went to managing general agents or other service providers. Most importantly, when those service providers are affiliated with the insurer, the examination should determine who owns those companies, what services they actually provided, how much they were paid, how profitable they became and whether an independent company would have charged comparable amounts for the same services. Following the money through the entire corporate structure would allow regulators to distinguish legitimate insurance expenses from costs that deserve greater scrutiny.
This type of audit would not mean that every requested rate increase should be denied. Florida faces enormous catastrophe exposure, reinsurance can be extremely expensive, construction costs have increased, inflation affects repair prices, litigation creates real expenses, and hurricanes can produce billions of dollars in losses. If an independent examination establishes that those legitimate expenses require an insurer to collect additional premium to remain financially sound, then the evidence supports the need for a rate increase. Requiring verification is therefore not anti-insurance because financially stable insurance companies are necessary for Florida's homeowners and economy.
The same standard, however, must work in both directions. If an insurer reports significant losses while substantial amounts of money are being transferred to affiliated companies, regulators should determine whether those transactions contributed materially to the reported losses before requiring homeowners to make up the difference. If related companies are charging substantially more than independent businesses would charge for comparable services, policyholders should not automatically be expected to subsidize those costs through higher premiums. The principle is simple: if the financial need is legitimate, demonstrate it; if the financial need cannot withstand independent scrutiny, Florida families should not be required to pay more simply because an insurer says it needs additional money.
This is why Florida should establish a clear standard for substantial rate increases based on financial distress: no verified financial need, no rate increase. That does not mean regulators should substitute political judgment for actuarial science, nor does it mean rates should artificially be held below the level necessary to cover legitimate risk. It means that when an insurer asks the public for substantially more money, the financial assumptions supporting that request should be subject to meaningful independent scrutiny, including scrutiny of affiliated-company transactions. Such a requirement would protect policyholders from unjustified increases while also providing insurers with an independent means of demonstrating when higher rates truly are necessary.
The issue becomes even more consequential because Florida homeowners did not merely experience rising premiums during the insurance crisis. Policyholders also lost significant statutory protections as lawmakers attempted to stabilize the market. Assignment of Benefits was eliminated for new property policies, the previous attorney-fee framework was eliminated for property insurance disputes, and the environment surrounding property insurance claims changed substantially. If reported insurer losses helped create the political justification for those reforms, then lawmakers should have had access to the fullest possible picture of how money moved throughout the insurers' broader corporate structures before determining which policyholder protections should be eliminated.
None of this establishes that litigation, hurricanes, fraud, reinsurance expenses or other factors did not contribute to Florida's insurance problems. Multiple factors can simultaneously affect an insurance market, and it would be just as misleading to blame the entire crisis on affiliated-company transactions as it would be to ignore those transactions completely. The appropriate response is to examine each claimed cause using reliable evidence and determine how much each factor actually contributed. That type of analysis requires transparency rather than predetermined conclusions from either the insurance industry or its critics.
Florida should therefore adopt a straightforward philosophy whenever an insurer claims that its financial condition requires substantially higher premiums. Open the books sufficiently for regulators to evaluate the claim, independently verify the numbers, examine material related-party transactions, compare affiliated-company charges with reasonable market costs and follow significant transfers of policyholder premium dollars. If the evidence demonstrates that the insurer genuinely needs additional premium to remain solvent and capable of paying claims, regulators should consider the request based upon that evidence. If the evidence shows that excessive expenses or unreasonable related-party transactions are materially contributing to the reported financial distress, homeowners should not automatically be handed the bill.
Ultimately, this issue should not be about Republicans, Democrats, insurance companies, attorneys, contractors or public adjusters. It should be about accountability. Florida families are required to maintain property insurance in many circumstances, and most homeowners with mortgages have little practical choice but to pay whatever premium is necessary to protect their homes and satisfy their lenders. When those families are told that premiums must increase because insurance companies are losing money, they deserve confidence that someone independent has examined the numbers and determined that those losses reflect legitimate financial realities.
Floridians were asked to accept higher premiums and fewer protections because they were told extraordinary measures were necessary to save the property insurance market. The newly disclosed information does not by itself prove that the industry's reported losses were illegitimate, but it provides a compelling reason to question whether the public was always seeing the complete financial picture. Before Florida asks homeowners to sacrifice additional money or additional rights in the name of another insurance crisis, regulators should follow the evidence, follow the money and verify the financial need. After everything Florida policyholders have already surrendered in the name of stabilizing this market, they deserve more than assurances that an insurance company is losing money. They deserve the receipts.
