Great article explaining the Florida Insurance Marketplace

Dennis Maley does an excellent job of explaining the back end of how insurance companies operate and how they are able to be ever so profitable.  This is a great article that every Floridian should read!

Homeowner Insurance Problems Don’t Start With Citizens

Published Thursday, June 21, 2012 12:10 am

by Dennis Maley

This week, Tom Grady, the interim president of Citizens Property Insurance, the state’s “insurer of last resort,” made the rounds to portray private sector insurers as victims being squeezed out of the market by a big government program teetering on disaster. Citizens Property Insurance may well be a mess, but any honest conversation about solutions to Florida’s age-old insurance woes must begin with the private sector’s role in delivering us to where we are today.

Property insurance in Florida is a shell game, plain and simple. Insurers have been devising increasingly profitable ways to gouge property owners for years, and they’ve gotten it down to a science. While crying about Florida’s tight regulation and state competition, Grady and his friends fail to mention that the industry routinely hides profits in the unregulated and shockingly opaque business of reinsurance.

Reinsurance is insurance for insurance companies. It’s like a big-time bookmaker, whom smaller bookies can lay off risk to when they’ve got too much exposure on one side of a bet before a big game. Only, in this case, the little bookie is just a front for the big one, giving the appearance that the insurer is losing their hide when they’re really laughing all the way to the bank.

Reinsurance has almost no transparency whatsoever. Companies are set up offshore so that your insurer can send them outrageously high “reinsurance premiums,” ostensibly to hedge their risk and make sure money is available to pay your claim. This can account for more than half of your premium dollars and the portion of premiums that go to reinsurance payments on Floridian policies tripled between 2004 and 2009, according to an investigative report by the Herald Tribune.

While insurance profits are indeed regulated, reinsurance payments are an outgoing expense that the parent companies can do whatever they want with, including taking a profit. So, if the insurance company collects 100 dollars and keeps it, spending only 20 on claims and expenses, they might have to lower their rates – and certainly, aren’t going to be able to win the required approval to raise them. Therefore it’s no coincidence that unregulated “reinsurance,” often issued by the same corporation under a different name, has skyrocketed, allowing them to rake in tons of dough, while also giving the insurer a case to raise rates because of all the money they are “losing.”

Legislators know this, the industry knows this, and I am quite sure that Rick Scott and Tom Grady know this. Hell, the Herald-Tribune won a Pulitzer for exposing it. Yet here we are throwing legislative pity parties for the insurance companies, bemoaning the greedy homeowners who are getting over with their commie, state-owned insurance policies that are going to bankrupt us all. Meanwhile, no one is explaining why there was a $20 billion dollar gap last decade between what was collected in premiums and what was paid in claims, despite the worst historical decade on record in terms of storms. It must be all of that expensive reinsurance.

Here in Florida, we just ignore such details and press forward with whatever narrative suits the objectives of the industries that own our bought-and-paid-for government. This is after all, the state that thinks it makes sense to allow utilities to pre-bill customers for future nuclear plants that they may or may not build. These are both antitrust exempt, non-competitive industries. The deal is supposed to be, provide a critical service at a reasonable price and you’ll make a reasonable profit in return, without all of the uncertainties of a wide-open marketplace.

Instead, insurance companies and their legislators routinely act as though taxpayers are no more than a carcass to be picked over by greedy vultures. If it runs afoul of “the rules,” we just change or ignore them. As is usually the case, Floridians deserve better, but so long as they keep electing empty suits and industry shills, they’re unlikely to get it.

Dennis Maley is a featured columnist and editor for The Bradenton Times. His column appears every Thursday and Sunday on our site and in our free Weekly Recap and Sunday Edition (click here to subscribe). An archive of Dennis’ columns is available here. He can be reached at You can also follow Dennis on Facebook and Twitter by clicking the badges below.

via Homeowner Insurance Problems Don’t Start With Citizens – The Bradenton Times – Free News for Bradenton, FL and Manatee County.