Gallagher, Crist Withdraw Proposed Rule to Give Insurance Companies Higher Profits

A proposed rule that would have explicitly given insurance companies the option to seek higher profits, scheduled to be approved Tuesday by the Florida Cabinet, was withdrawn on Tuesday by Tom Gallagher, Florida’s DFO and Attorney General Charlie Crist.

“I think their concern is the calculation of what impact it might have on rates,” Florida Insurance Director Kevin McCarthy told the Fort Myers News-Press. Both Gallagher and Crist are candidates for governor and neither wished to approve a change that could result in higher rates.

Florida law forbids “excessive” insurance profits. The Office of Insurance Regulation’s current rule sets the ceiling on “acceptable” profits at 5 percent. McCarty said regulators can bend it if a company demonstrates it needs to earn more, though he could not name examples.

Current profit limits are an issue for Allstate Floridian as it seeks combined 28 percent rate increases from the Office of Insurance Regulation, McCarty said.

“They’re asking for additional (profit) rates” higher than prescribed by the current rule, McCarty told the News-Press.

Allstate Floridian spokesman Ryan Priest said he could not immediately comment.

Insurers argued to McCarty they need to offer higher profits to persuade investors to sink money in the risk-prone state. After the 2004 hurricanes, most major insurers in the state required infusions of cash from their parent companies or investors.

Gallagher, himself a former insurance commissioner, did not buy it.

“I don’t think changing the rule would get more people to invest in Florida,” he said. “Nobody’s shown me any positives to the people of Florida to make the rule change at this time.”

Crist agreed.

“Rates going up was my concern,” he said. “Everybody deserves to make a profit that is reasonable. What I don’t support is profiteering and what I think we need is further study to make sure what is being asked for is appropriate.”

The bulk of the withdrawn proposal is not contested. It includes new formulas to determine the investment income insurers earn from collected premiums before they’re paid out as claims.

For some lines of insurance, the length of time between collection and loss payments is years and the investment earnings are sizeable.

“I definitely think we need to redo how we calculate that,” McCarty said.

Topics Florida Carriers Profit Loss A.J. Gallagher