Georgia Insurance and Safety Fire Commissioner John King informed lawmakers that current state regulations provide his office with the authority to examine agreements between insurers, their affiliates, and holding companies.
King’s statement was issued in response to a request from state Sen. Nabilah Islam Parkes, who sought information on insurer affiliates, subsidiaries, and managing general agents (MGAs).
The issues referenced in King’s letter are similar to findings in a recent Florida Office of Insurance Regulation report, which concluded that some insurers’ fee structures were not “fair and reasonable.”
The Florida report has led lawmakers there to investigate concerns that property and casualty (P&C) insurers were reporting net losses while their affiliates generated billions in profits.
P&C insurers in the United States often operate through complex affiliate structures, encompassing various subsidiaries and affiliated entities which are meant to diversify risk, optimize tax strategies, and comply with state-specific regulations.
However, while these structures offer operational benefits, they have faced a barrage of criticism. Consumer advocates argue that insurers might exploit differing state regulations to minimize oversight or capital requirements, potentially undermining regulatory objectives.
One notable case involves State Farm's restructuring of its California subsidiary. Those against it argued that this separation could be used to portray the subsidiary as financially distressed, potentially justifying rate increases, despite the parent company's overall financial health.
Regardless of the actual state of State Farm’s solvency, California regulators have allowed the insurance giant to raise their home insurance premiums by an average of 22%, with conditions attached.
King said Georgia law allows the Department of Insurance to review and approve agreements between domestic insurers and their affiliates and subsidiaries. He said that these reviews are conducted on a case-by-case basis to assess whether compensation structures are fair and reasonable.
The commissioner also noted that no Georgia-domiciled insurer can distribute extraordinary dividends to shareholders without his approval. Additionally, state law requires insurers to notify the department within 30 days when an MGA agreement begins or ends.
King said the department retains the authority to examine the books and records of licensed entities and exercises that authority when necessary to protect Georgia consumers.
What are your thoughts on this story? Please feel free to share your comments below.
