Proposal to require state oversight of insurance affiliate payments clears first hurdle in Legislature

Property insurance companies would face increased scrutiny by state regulators over payments they make to parent and affiliate companies — which critics say can be used to cloud profits and justify rate increases — under a bill unanimously supported by a House insurance committee.

Supporters say the measure, if enacted by the full Legislature, will save policyholders money by preventing insurers from paying excessive fees.

The bill, sponsored by Pinellas County Republican Kimberly Berfield, addresses findings and recommendations in a study that surfaced last year and was later investigated by the House Insurance and Banking Subcommittee.

The study, by Risk & Regulatory Consulting LLC, covered three years — 2017 to 2019 — after hurricanes Irma and Michael, when many insurers sought rate increases by claiming they lost money on claims and litigation.

It found that during that period, 19 insurers based in Florida or surrounding regions funneled billions of dollars in fees to holding companies and other affiliates that were not “fair and reasonable,” as defined by various industry rules. The insurers were not identified in the study.

The study showed that insurers paid investors $680 million in dividends and accepted $951 million in capital contributions from affiliates, clouding regulators’ abilities to determine insurers’ actual financial health.

House Bill 1399 would require insurers to submit records to the Office of Insurance Regulation every three years “demonstrating that all fees, commissions, or payments to affiliates are fair and reasonable.”

The Insurance and Banking Subcommittee, which consists of 13 Republicans and five Democrats, voted 17-0 to advance the bill (one member was absent). It is next scheduled to be heard by the Commerce Committee en route to a vote by the full House. A companion version in the Senate, filed by Rep. Carlos Guillermo Smith, an Orange County Democrat, has not yet been heard by any Senate committees.

Asked by Rep. Yvonne Hinson, a Democrat representing parts of Alachua and Marion counties, how the bill would reduce costs for policyholders, Berfield explained that it would ensure “that the insurance companies who are collecting our premiums are actually utilizing it for what that premium was intended for.”

Berfield added, “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.”

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Rep. Hillary Cassell, a Republican representing parts of Broward County, said the ability to define fair and reasonable would be “life changing for consumers.”

“Having that definition is where we are going to start to see savings to consumers by defining what that term is, what those rates should be, (and) what is reasonable compensation for providing those services. Those savings are going to get passed on, because right now they’re getting to charge excess rates with no oversight.”

Contacted by email after the meeting, Amy Bach, executive director of United Policyholders, a California-based consumer rights group, lauded the bill, saying that homeowners have the right to trust that state regulators are verifying that insurers’ assets are solvent “and not paying excessive fees to affiliates that deplete their ability to pay claims.”

A bill analysis explains that the definition of fair and reasonable would be based on the cost of services provided by affiliates, the financial condition of the insurer and its affiliates, the amount of dividends paid by the entities, and whether the payment contracts benefit the property insurer and its policyholders.

Contracts between insurers and their affiliates authorizing dividends and payments for services would have to be approved every three years if the bill is enacted.

Representatives of two industry trade organizations, the Florida Insurance Council and the American Property Casualty Association, submitted comment card declaring opposition to the bill but neither chose to explain their reasoning.

An introductory section of the study that became the basis for the bill was released in draft form to the Tampa Bay Times prior to the 2025 legislative session. The Times reported that it was produced but not released to lawmakers prior to an emergency legislative session in 2022 that resulted in laws restricting the ability of plaintiffs’ attorneys to collect legal fees from insurers they’ve sued and barring homeowners from signing over policy benefits to contractors.

Insurers blamed both practices for a years-long stretch of net losses and difficulty securing affordable reinsurance.

Insurers reacted to the study by calling payments to affiliates standard industry practice that’s been going on for years. They said that the Office of Insurance Regulation already has authority to look at their entire operations.

But the study suggested that many Florida insurers weren’t as poor as they claimed.

According to the study, “a significant number of insurers” contract with affiliates or third party companies to handle such operations as claims investigation and settlement, information technology, accounting, policy administration, and underwriting.

On paper, insurers separate those operations from the underwriting function — use of premiums to pay claims — which can be shown to lose money while the separated activities generate profit for the affiliates, the holding companies and their investors.

Insurers can point to losses within the underwriting function to justify their need for rate increases. Regulators, however, currently have no authority to include affiliates’ financial records when determining whether the rate hikes are justified.

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071 or by email at [email protected].

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