CFO Alex Sink Speaks Out On Florida’s Insurance Woes and More

One of the first things Alex Sink was asked to when she became Florida’s new CFO was to come up with ways of lowering insurance rates and provide some respite for the state's beleaguered homeowners. After a special ten-day session, the result was the expansion of The Florida Hurricane Catastrophe Fund to $28 billion, allowing insurers to buy less expensive back-up insurance. The expectation around Tallahassee was for insurers to pass on the savings to policyholders, with rate cuts averaging 20 percent or so.  
 
However, six months later, the promised savings haven't materialized and people are unhappy about this. In fact, at least five carriers have filed to raise rates later this year. One company, Florida Farm Bureau, said it had lined up its reinsurance for this hurricane season before the CAT Fund was expanded, so it was locked into the more expensive back-up insurance. The company needs to charge higher rates.  
 
Even if all the promised rate cuts don't materialize, the CAT Fund has taken on a lot more risk. If it runs out of cash to bail out insurers, the policyholders will be asked to make up the difference.  
 
Coping with the state's continuing insurance crisis, which now includes auto insurance since Florida's controversial no-fault law is set to expire in October, are what are on Sink's mind these days.  
 
Here is a reprint of the Q&A about the situation between the Miami Herald and CFO Sink:  
 
Q: Are state officials considering any measures to beef up the CAT Fund's cash position in case a major storm hits Florida?  
 
A: The idea is to do some "pre-event financing" -- borrow some money and get more cash in the bank.  
 
Last year, the CAT fund borrowed $2.8 billion. There are proposals floating out there that would have us going as high as $10 billion. We would have to borrow that money.  
 
It won't be cheap. It's all about having money available to pay claims in the event of a big storm.  
 
Q: What happened to those rate cuts that homeowners had been promised?  
 
A: Who told us that we were going to see 20 percent rate reductions? It was the OIR [Office of Insurance Regulation], which hired Robert Hunter [insurance director for the Consumer Federation of America and former Texas Insurance Commissioner] for pretty big money to do an analysis of what we could anticipate.  
My question is -- and I'm going to bring this up to the [Florida] Cabinet -- we heard 20 percent and we got 10 percent. What happened?  
 
We took on an enormous amount of extra risk (in the CAT Fund) because we all agreed our policyholders were hurting, our economy was hurting and we needed rate relief.  
 
We should always go back and find out whether it was a miscalculation, bad information or whether in fact the insurance companies aren't doing what they were supposed to be doing.  
 
But think about this: State Farm was out there from the get-go, saying "our rates could come down between 8 percent and 10 percent."  
 
Citizens wasn't [directly] impacted by the CAT Fund changes, but it was out there saying "our rates might come down about 10 percent."  
 
So, between State Farm and Citizens, that's 50 percent of the market.  
 
How do you get 20 percent if 50 percent of the market is saying they are only going to [drop] rates about 10 percent?  
 
Q: What's your view of the allowed expansion for Citizens Property Insurance, the state-run insurer? It will be writing more commercial coverage. For some kinds of risk, such as condo associations, it's practically the only insurer around.  
 
A: There are a couple pieces of Citizens that we sho