What’s Wrong With Florida? …and with Alabama, Arkansas, Arizona, California…

Posted on October 25, 2010.

An avid reader called us here in the Hoboken, N.J., office of National Underwriter and said, "I live in Florida.

Why is it that every questionable life insurance and annuity sales practice seems to start or take off here?"

Our Hoboken office happens to be a block from the Hudson River, where mobsters made many a soul sleep with the fishes. The city's youngest mayor ever was sworn into office July 1, 2009. He ran the city for 22 days before being arrested by the FBI in a corruption probe. He is now serving a 24-month sentence in a minimum security federal prison.

I went to journalism school near Chicago, where FBI stings are about as common as rummage sales, and I grew up in Kansas City, Mo., where the citizens take great pride in describing how Kansas City mobsters put the slots in Las Vegas.

It doesn't seem as if Florida could run away with a race to see which jurisdiction had the most interesting financial services regulatory climate.

But also I spent three years in Vero Beach, Fla., at a time many residents were suing over real estate limited partnerships that had gone bad, living in shoddy new condos that were nothing like what the developers had promised, and discovering that their life insurance premiums were not going to vanish. The old National Association of Securities Dealers, Washington, often seemed to list at least one broker from the area in its monthly disciplinary action report.

So, is Florida really different, or is there a scent of something fishy wherever we care to try to smell it?

Sheryl Waters, a certified public accountant and a certified fraud examiner at Waters CPA Group P.A., Tampa, Fla., a firm that helps some clients set up life insurance and annuity arrangements and helps others untangle what she believes to be unsuitable arrangements, says she thinks Florida really is different.

"Everything weird starts in Florida," Waters said.

She thinks most of the weirdness has to do with consumers and product sellers who have moved to Florida, not with anything all that unusual about the culture of Florida itself. And she doubts that many of the people who sell bad arrangements start out consciously trying to do anything wrong. Instead, she said, she thinks poorly educated, poorly trained people who have spent too little time in church are making promises that the products they sell are unlikely to keep. They do this partly to meet unrealistic sales quotas, and partly because they believe what they are saying.

"It would be funny if it wasn't so overwhelming," Waters said.

Mason Dinehart III, president of Financial Education Network Development, Los Angeles, a firm that provides expert witness services during securities arbitration proceedings, said he believes any geographic variations in the financial services regulatory climate have to do mainly with demographics.

"You look for any concentration of retirees," Dinehart said.

Frank Darras, an Ontario, Calif., lawyer, represents consumers in cases involving disability insurance and long term care insurance. His disability insurance clients come from all over the country. "I see more claims coming out of places that are warm," he says of the long term insurance market.

Florida Insurance Commissioner Kevin McCarty, who was appointed to the commissioner's post by Gov. Jeb Bush (R) in 2003, said Florida has a high concentration of older residents and a history of being a place where some have gone to try to take advantage of others.

But Florida also has some of the most stringent insurance laws in the country, McCarty says, and Florida regulators have helped develop models used throughout the country to handle issues such as travel underwriting.

Advisors who represent consumers in conflicts with insurers and insurance marketers said they believe the overall quality of U.S. insurance regulation is uneven. But they all agreed that the Florida Office of Insurance Regulation has made serious efforts to help consumers. For instance, Florida regulators have "clamped down on the annuity business," Waters said.

Eli Lehrer, director of the Center on Finance, Insurance and Real Estate at the Heartland Institute, Chicago, said he disagrees with Commissioner McCarty on a number of important issues. "But I think he's smart, competent and ethical," Lehrer said.

Outside Florida, most state insurance commissioners seem to be good at what they do, despite rare reports of outright bribe-taking and somewhat more frequent reports of enthusiastic enjoyment of corporate hospitality, Lehrer noted. "In general," he said, "the problems are not with corruption, but with poor regulation and poor business practices."

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said he believes commissioners and other regulators in Florida, Wisconsin and some other states have taken their responsibility to protect consumers seriously.

But, too often, "they come from the industry and they go back to the industry," said Birnbaum, who once worked for the Texas Department of Insurance and has represented consumers in proceedings at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo. As a result, regulators who want to get out of the public sector may feel as if they have no good alternative to working in the industry.

One sticking point with insurance regulation is that many major problems have surfaced through trial lawyers, media reports or investigations by state attorneys general rather than as a result of insurance department exams and investigations, Birnbaum said.

Connecticut Insurance Commissioner Thomas Sullivan, chair of the Life Insurance and Annuities Committee at the NAIC, said he believes life and annuity policies have mostly converged. Any lingering differences in the nature of regulation tend to be due more to agency's resources and its level of aggressiveness than to policy differences, he said.