Q & A with Florida's New CFO on Insurance Indsutry

Florida’s new CFO Alex Sink (the overall insurance regulator) seems to correctly comprehend the problems in Florida.

via a Q& A with the Miami Herald

Here’s how it starts …

Q: How did we get into this mess?

A: After Andrew, the market seemed stabilized.

What went wrong? We had these eight storms in a two-year period, particularly in 2004 when we had four major storms that blanketed our state, causing insurance losses. That immediately was followed by another bad year in 2005.

In retrospect, most people believe our insurance rates in the private market and in the public market, meaning Citizens Property Insurance, were artificially too low in the intervening years.

It was a reality check. The private insurers realized they had gotten their numbers wrong. And we ended up with deficits in Citizens that had to be made up by Floridians.

A lot of the insurance market is psychology. The reinsurers have stepped up and said: ``Wow, look at what can happen in Florida over the course of two years.''

Then, you add on top of that these predictions from the weatherman that we're in for a 20-year cycle of continued multiple hurricanes in Florida.

Nobody wants to risk their capital in a market where we may be having four and five storms year after year. Those are the things that have caused the collapse of the insurance market.

Hopefully, she really gets it.  The only thing she forgets is the Office of Insurance Regulation’s role in keeping prices below actuarial costs.