‘How regulators put Florida homeowners at risk’ (April 18)

The following is an analysis that is part of a graduate thesis. Learn more.

The issue in this story was the extent to which insurance regulators’ policies toward fledgling home insurers helped or harmed consumers. St. John’s arguments in this story were some of the strongest offered so far in this series, but also contained more instances of a frustrating lack of evidence.

Both of the main conclusions of the story, foretold by the headline, that at least some of what regulators did harmed consumers, was contained in one paragraph. To wit:

A yearlong Herald-Tribune investigation found that allowing struggling insurers to remain in business has become an alarming part of how Florida regulators cope with the state’s ongoing property insurance crisis. (7)

St. John thus offered two conclusions: that “allowing struggling insurers to remain in business” is a new strategy for Florida regulators, and that the strategy is alarming. An immediately noticeable ambiguity was in the meaning of “alarming,” and this ambiguity proved vexing, as will be discussed.

Regarding the first conclusion, that of regulators’ new strategy, the first question to ask of the story was, “what evidence does St. John offer to show that regulators have allowed ”struggl[ing] insurers to remain in business?"

St. John first summarized the charges. In the mid to late–2000s, she wrote, Florida regulators “allowed at least four insurers on the verge of failure to write policies through most of 2009” (8). Regulators also gave insurance licenses to potential insurers “who had no funding” or had “dubious credentials” (9). They “encouraged unproven companies” to accept large numbers of policies and “steered more than 200,000 homeowners” toward firms who they knew to be bleeding out (10). The state insurance commissioner “took extraordinary steps” to keep the companies alive, accepting “questionable assets” as possible means of paying claims (11).

“The Herald-Tribune found evidence of these practices in five of the seven instances in which companies foundered last year,” St. John wrote (12). What evidence?

The full details of how regulators handled those insurers remain sealed within confidential regulatory records. The exception is Keystone, whose closure is documented in thousands of pages that became public when the company was forced into liquidation last fall. (13)

Indeed, the fall of Keystone was well documented. St. John expertly presented regulators’ meetings, memos, and reports, along with material from her own interviews, throughout 1,700 words that demonstrated fairly convincingly most of her claims about insurance companies and regulators as offered in the summary. There were some key claims not clearly backed up, but more than enough other claims were noted as originating from a report or handwritten note that the unsourced claims could be overlooked.

That said, St. John’s claim went beyond one insurer. She wrote of “struggling insurers.” The evidence substantiating that the regulators’ strategy had become widespread apparently was available to her, but she never specified what the evidence was.

If the “full details” surrounding the other insurers were “sealed within confidential regulatory records,” how did she know about them? If the backing for her claim came from those records, readers were given no way of knowing that she saw them. If she was prevented from disclosing what she saw or who gave her access to the files, she didn’t say so. If her evidence came from somewhere other than the sealed records, the source wasn’t mentioned. The stories of the other companies, even their names, were simply forgotten. Consequently readers would have needed to take on St. John’s authority that she had seen additional evidence substantiating her claims, or not accept those claims yet.

Similarly, nothing was said to substantiate the “newness” part of her claim. She wrote that the regulators’ practice “has become” a part of their coping strategy — as in, at one point it wasn’t part of it. But when this time was, or when the shift began, or reasons to believe either date was accurate, were absent from the story.

In fact, at one point St. John wrote that the Office of Insurance Regulation, “which is responsible for protecting consumers from dangerous insurers,” “could have quickly stepped in to try to close the company” (62–63). But the office “rarely takes that step,” she wrote, without elaboration (63). Reasonably assuming that the OIR was among the “regulators” she referenced in her conclusion, this statement suggested that allowing struggling insurers to press on was actually a fairly regular practice, not a new strategy.

St. John so clearly put forward her evidence for the interaction between insurer and regulator when it came to Keystone that it would not have seemed so difficult for her to provide at least a touch of context or evidence for the other parts of her first conclusion. Unfortunately for readers, little existed, leaving the conclusion largely in the hands of an argument from authority.

What about the second conclusion: not just that the practice existed (assuming arguendo that it did as she claimed) but that it was “alarming”?

First, what did St. John mean by “alarming”? Alarming whom? On what scale? She never said, instantly providing an ambiguity harmful to any attempt to demonstrate the point.

St. John wrote that Florida was in an “ongoing property insurance crisis” (7). It seems clear that a crisis changes the boundaries of what is more or less alarming, such that what seems alarming in calm times becomes the sensible, if ugly, option in more strenuous circumstances. It might be in the best interest of the state to try to push struggling insurers forward in the interest of, say, forestalling panic among homeowners.

Or maybe not — the point is St. John did not provide any sense of what qualifies as alarming to her.

The ambiguity of “alarm” was troubling in itself, but it became a bigger roadblock for someone trying to accept her argument when she quoted state officials making precisely the argument that their practices are ugly but necessary.

Administrators at the Office of Insurance Regulation say they do their best under difficult circumstances.

They believe it is more damaging to suddenly close a company and dump large numbers of policyholders back onto the state than it is to let a failing company take a year to silently wind down while seeking a buyer.

Regulators say they are trying to more aggressively go after weak companies but also say legal hurdles to shut down a company are steep. (19–20)

St. John provided quotes and paraphrases from regulators making this argument in greater detail in the final section of the story. She even quoted a regulator who aimed at a fundamental conclusion of the story:

“To say we keep the company in business is not a fair characterization,” Miller said. “We were putting them in a position to take policies out. We were taking it apart at that point.” (99)

To include these counterarguments from regulators was, of course, commendable. It showed someone taking care to understand the issue under discussion and the ways in which her argument could falter. The trouble was that St. John never took the additional step to rebut these counterarguments — they were simply presented as the views of the regulators. Coupled with the lack of clarity given to her use of “alarming,” these counterarguments made it harder for readers to accept her conclusion.

Once again, readers might have wondered why St. John didn’t take the effort to respond to the regulators, in part because she did respond to other minor counterargument from them. She quoted the regulators as saying that homeowners were at “minimal” risk in being unknowingly kept with failing insurers because the insurers had reinsurance, a backup form of insurance, and if all else failed could be placed under the state-run insurer of last resort. St. John responded by noting that the state insurer “covers only the first $500,000 in losses, leaving owners of larger homes unprotected” (23). Drawing on the Keystone documents, she also noted that the company had, in its final throes, canceled parts of its reinsurance contracts (25).

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