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A Florida House of Representatives panel went straight to the source of a consultant’s report that has caused widespread concern among lawmakers about insurance company profit-shifting.

But the hour-long web interview with Arizona-based consultant Jan Moenck shed only limited light on the appropriateness of Florida property insurance holding companies paying large fees to their managing general agents while some carriers struggled to stay solvent.

The testimony from Moenck came after the House Commerce Committee’s Subcommittee on Insurance and Banking voted 17-1 in favor of , which would require more transparency, oversight and limits on MGA fees, and would potentially lower the bar for plaintiffs to show bad faith by insurers.

The vote on the bill happened despite one lawmaker asking if the panel wasn’t jumping the gun.

“Do you think that it would be wiser to wait before coming up with this, since we are in the process of investigating all this?” asked Rep. Marie Woodson, D-Pembroke Pines.

The bill’s sponsor, Rep. Philip Griffitts, R-Panama City, said that the measure will probably be modified when it moves to the next House committee meeting.

The concerns about MGAs spread quickly last month when the Tampa Bay Times reported that a consultant hired by the Florida Office of Insurance Regulation had produced a report in 2022 that was never released to lawmakers. The report, by Moenck and Risk and Regulatory Consulting, noted in its summary that multiple insurers had paid millions in fees to their MGAs. The payments came at a time that several companies were asking for rate increases and were facing financial shortfalls.

The subcommittee held one hearing March 14, grilling the current and the former state insurance commissioner about the report. Thursday, the panel heard only from Moenck.

Takeaways from her testimony include:

The report was substantially complete, Moenck said, despite it being marked as a draft. Florida insurance advocates and regulators have said the report was never finished. Moenck explained that her firm, RRC, had finished the work OIR tasked it to do, but it is the consultancy’s practice to label reports as drafts until the client reviews. In this case, OIR never responded to RRC’s requests for final review of the research. Florida’s current and former commissioners said last month that the report had slipped through the cracks in the midst of Florida’s simmering insurance litigation crisis in 2022.

The OIR had initially asked the consultant to examine the affiliate fee arrangements for 16 Florida property insurers that were at the highest risk of insolvency. Later, the review was expanded to all property insurance carriers in the state, except a few that had been recently acquired, said Moenck, who has consulted for OIR for more than 20 years.

The consultant did not make a judgment on whether the MGAs fees contributed to higher premiums or to the demise of carriers in the years 2017 to 2019. Moenck noted the review classed insurers’ affiliate fees into three categories: “fair and reasonable,” when the fees were less than 110% of the insurance carriers’ combined net income; “more information needed,” when fees were between 110% and 115% of the insurer’s net income; and “not fair and reasonable,” when fees were 115% or greater. Moenck noted that the categories were based on internal considerations.

The names of the Florida carriers that fell into each bucket were not released in the consultant’s report summary, and the full report has not been made public due to insurers’ trade secret information in it. The subcommittee had asked how RRC might act on data that raise concerns. “More context would be needed to respond to that question,” Moenck said in the hearing.

Florida law does not define what fair and reasonable fees should be for MGAs and other affiliate companies, and leaves it to OIR to draft rules on that. Moenck said at least 25 other states follow a similar practice and do not prescribe the scope of fees in statute.

The report’s summary noted that while insurers had paid billions of dollars to MGAs, millions came back to some of the carriers as capital investment. Moenck said it may not be possible to know exactly where the funds ultimately ended up, without a forensic accountant examining each company’s books.

Moenck also said that it was not in the scope of her review to decide if OIR had failed to enforce Florida law on affiliate fees. When Rep. Yvonne Hinson asked if she had found insurance company practices that were in violation of state regulations, Moenck said, “no.”

One key question was not asked Thursday: How Florida insurers’ fee arrangements with MGA compare to those in other states, or to an industry average or to years’ past. In answer to another question from a subcommittee member, Moenck did say that trade secrets are not unique to Florida, and many other states allow insurers to keep proprietary information from the public, but not from regulators.

The hearing is available on The Florida Channel’s . The committee plans further hearings and the panel’s chairman said House Speaker Danny Perez had asked lawmakers to expand its investigation, including hiring consultants to examine the affiliate pay arrangement. That would last longer than the legislative session and would likely mean reports would be completed later this year.

Top photo: Consultant Moenck speaking at the subcommittee hearing Thursday. (The Florida Channel)

Topics Florida Insurance Wholesale