By Zac Anderson, Sarasota Herald-Tribune, Ocala Star-Banner, Gainesville Sun
TALLAHASSEE - Regulators came down hard Thursday on Florida's second-largest property insurance company, levying a $1.26 million fine and ordering the company to stop a number of anti-consumer activities.
Fort Lauderdale-based Universal Property and Casualty Insurance Co. is accused of wrongly denying claims, canceling policies without adequate notice and making outsized profits at affiliates while the parent company declared loses, among other alleged legal violations.
The Florida Office of Insurance Regulation ordered Universal to immediately cease the highlighted practices and pay the fine — believed to be one of the largest in state history for a home insurance company — within 30 days, although the insurer is entitled to an appeal before an administrative law judge.
Universal, which has 543,000 policies statewide, including 32,000 in Sarasota and Manatee counties, did not respond to email and telephone messages for comment Thursday.
The findings from a two-year investigation reinforced some of consumers' worst fears about Florida home insurance companies: that they hide profits while sticking homeowners with higher rates and fighting against paying claims.
That such problems were cited at the state's largest private insurer raises questions about the entire industry at a time when state leaders are trying to increase the number of policies held by the private insurance market.
Gov. Rick Scott signed legislation Wednesday designed to move policies out of state-run Citizens Property Insurance and into private insurers' portfolios.
Critics of the effort to shrink Citizens have questioned whether homeowners will be better off in a private market that has been in turmoil, with escalating rates and a raft of smaller companies that might not withstand a hurricane.
New Port Richey Republican Rep. Mike Fasano, one of the industry's most vocal critics, said the Universal investigation shows more oversight is needed before homeowners will have confidence in the many Florida-based insurers that have emerged across the state in recent years.
"When you read about a company like Universal and what they have done why would anybody want to opt out (of Citizens) and go with a private company?" Fasano said. "Why would any homeowner trust these companies?"
Founded in 1997, Universal is one of the older and better established Florida-based property insurance start-ups. The company was formed to take policies out of an earlier version of Citizens when the state-run insurer swelled in size after Hurricane Andrew hit in 1992.
But Universal's most explosive period of growth came after eight hurricanes hit Florida during the devastating 2004 and 2005 storm seasons. The company stepped in to take over policies dropped by large national carriers such as State Farm, Allstate and Nationwide.
Universal has grown by 600 percent since December 2005 and recently passed State Farm as the largest private home insurer in Florida by policy count. Only Citizens is larger. Universal took in $765 million from ratepayers last year.
But when it came time to pay claims, regulators say homeowners faced many hurdles. According to the regulatory report, Universal referred all claims to a "Special Investigation Unit" that reviewed policyholders' applications looking for reasons to cancel a policy and deny payment.
Such "post-claim underwriting" is "very troublesome," said Robin Westcott, the state's insurance consumer advocate.
Westcott called attention to the practice in April after receiving a number of complaints from homeowners. Omissions or misstatements on a homeowner's original application for coverage that had nothing to do with the claim — such as late payments on an old debt or other credit issues — were used to void policies, she said.
Westcott lauded insurance regulators for the "unprecedented" fine and corrective actions against Universal, which she described as "very punitive" and "very steep."
"Any action by a company that looks for a reason to deny a claim after taking people's hard-earned money should rise to the top of the list of actions that we just won't tolerate," Westcott said.
Although Universal executives did not respond to Herald-Tribune requests for comment on the state action, regulators noted in their report that the company disputes some of the allegations.
While Westcott said the pattern of improperly denying claims was Universal's most egregious offense, she said the company's financial dealings may be a larger problem industrywide.
Regulators noted that Universal often reported loses, even as affiliates controlled by the parent company were reporting substantial profits.
Such financial statements are important because they are often used to justify rate increases. Universal increased rates by 15 percent in 2011.
In 2010, Universal reported an underwriting loss of $10 million, even as one of the company affiliates reported net income of $37 million. Another affiliate took in $44 million in 2009, when Universal reported losses of $3 million, according to the report.
"The occurrence of losses at (Universal) and profits in the affiliates raises concern as to the fairness and reasonableness of intercompany arrangements in times of declining market conditions," investigators wrote.
All told, Universal paid affiliates $86 million in 2010 to handle much of the company's business.
"Analysis of contracts with affiliates indicates fees paid by the company are higher than those charged by other competitors writing Florida homeowners insurance," investigators wrote.
The practice of outsourcing much of an insurer's operations to "managing general agents" that are entirely controlled by the parent company needs more oversight, Westcott said.
"We need more transparency in the holding company system," she said, adding: "It is a place that can be exploited."
The Herald-Tribune highlighted the problem in a Pulitzer Prize-winning series in 2010 that noted Florida insurers pay 50 percent above the national average for overhead costs. For some companies, payments they made to affiliates were more than 40 percent profit.
Yet lawmakers have ignored the issue and declined to raise standards for private insurers, instead focusing on pushing more policies out of Citizens and into the private market.
Fasano said lawmakers are either clueless about insurance issues or reluctant to get tough with an industry that has significant pull in the state Capitol.
"No one asks the questions," he said.
EARLIER: State regulators fined Florida's second largest property insurance company $1.26 million Thursday for a litany of legal violations, from improperly canceling customers who file claims to making unusually large profits at affiliates while the parent company declared loses.
The Florida Office of Insurance Regulation ordered Universal Property and Casualty Insurance to immediately cease the questionable practices and pay the fine within 30 days. The company has 543,000 policies statewide, including 32,000 in Sarasota and Manatee counties.
The findings from the two-year long investigation reinforce some of the worst beliefs about Florida's private home insurance industry that companies hide profits while sticking homeowners with higher rates and then fight not to pay claims – at an inopportune time.
Gov. Rick Scott signed legislation Wednesday that seeks to move policies out of state-run Citizens Property Insurance and into the private market.