*Profits of insurance companies are limited by regulators to about 4.5% — hardly enticing to investors, considering the risk of hurricanes.
However, insurance executives in Florida have used financial workarounds to reward investors and themselves.
While the profits and executive compensation of the insurance company are capped, the profits of affiliate and parent companies are not.
So executives create sister companies that charge the insurance company for basic services, such as claims handling, underwriting, accounting and issuing policies. (Large national insurers typically handle all of those services internally.)*
Property insurance in Florida works like this:
A company sets up and says they want to take policies out of the state plan. The state wants its plan smaller. The company cherry-picks the less risky houses and says “we will have those, please.” Then after collecting premiums for a few years and funneling large bonuses to their executives (and presumably our legislature) declares bankruptcy and closes down.
Then the Exact Same People reorganize as a new company, rinse and repeat. This has been going on for my lifetime, and probably before. I think a whole lot of our problems with housing and transportation relate back to good ol’ boy handshake agreements from the 1960s and 1970s.
It would be cheaper for everyone if the state plan took all the houses. I am maybe halfway through my adult life and have paid enough in house insurance to buy another house, assuming a reasonable rate of return on those payments. Have never made a claim. They price it as though every single house will be completely destroyed every 40 years, but I’ve never lived in a house less than 40 years old, and most of the neighborhoods here have lots of older intact houses, and the newer ones are built to withstand very strong wind.