Amid an uproar over reports that Florida property insurance companies had shifted profits to affiliated firms while rates rose and carriers slid into insolvency a half-decade ago, former Florida Insurance Commissioner Kevin McCarty weighed in on the controversy.
A consultant’s 2022 report for the Florida Office of Insurance Regulation, first reported by Florida newspapers, has raised some red flags that need to be addressed, but the analysis did not back up its conclusions and left out key information, McCarty told Insurance Journal. The claim that profits were diverted to managing general agents while carriers imploded is an erroneous conclusion and would have been akin to “killing the goose that laid the golden egg.”
He urged legislators to hold off on using the report as a reason to undo landmark litigation reform and attorney-fee limits enacted in 2022.
“The worst thing you could do now is overreact and upset the fragile balance of investments in Florida. That’s the real fear,” he said.
McCarty, appointed by then-Gov. Jeb Bush in 2004, served as commissioner until 2016, after many years at the OIR and its predecessor agency. He has never been seen as an apologist for the industry and is considered an expert in insurance regulations. He is now head of Celtic Global Consulting, which includes insurance organizations as clients.
McCarty last week spoke with IJ about pending legislation and about the tempest over MGAs. Below are some highlights. The consultant’s draft report, made available through the Tampa Bay Times’ news articles, can be seen here. The report was produced by Jan Moenck, with Risk and Regulatory Consulting. She could not be reached for comment.
IJ: What’s your take on the concerns about the report on MGAs taking revenue from troubled insurance companies?
McCarty: I understand that the Legislature is pretty ginned up over the report. It’s unfortunate that it took so long for it to become public. I think the fact that the report was not completed is problematic, obviously. If the report is asserting that compensation was excessive, I think you would have to have demonstrated how you came to that conclusion, because it doesn’t in the report.
Plus, it shows the amount of money that went to the MGAs but it neglected to mention that 15% goes to commissions and 10% goes to policy assurance. It’s a fair criticism that there could have been a shifting of money, but they didn’t demonstrate it. That’s problematic.
Had they gotten further along and got the report to where it was not a draft, but completed, those issues would have come up. The NAIC doesn’t offer any guidance. It just says it needs to be transparent and arm’s length (with MGAs). These are portfolio companies and affiliates, so they’re not going to bid them out.
There’s a move to make it more transparent than what we have. The documents had been protected in a bill in 2022-23, allowing exemptions to public records law. There’s now legislation to undo some of those exemptions.
IJ: The report also notes that some MGAs waived their fees and gave money back to carriers in capital investment, as much as $951 million, from 2017 to 2019. That’s an aspect that has not received as much attention from critics.
