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Alex Sink proposes solutions to Florida's insurance crisis

Don't be fooled by Adelaide ''Alex'' Sink's laid-back Southern drawl.

The North Carolina native has proved her mettle as a bank executive -- she served as Florida president for Bank of America, overseeing more than $40 billion in assets for seven years. Now, as Florida's new chief financial officer, she's ready to take on the insurance industry to help pull the state out of its deepening insurance crisis.

Sink took advantage of the National Association of Insurance Commissioners' winter meeting last month to meet with several major insurers.

''I told them to stop sitting in a corner complaining,'' she recalls. ``We're at the point in Florida where insurance companies are not very well regarded.''

She believes before any more concessions are passed that favor the insurance industry -- such as the proposal to expand the state's hurricane catastrophe fund, which is likely to be a key means to lower reinsurance costs and possibly lower rates -- insurers are going to have to step up to the plate.

'They'll have to say `If you pass this incentive, we're going to write more policies. We're going to stop dumping long-time valued customers,' '' Sink says. ``It's been too much of a one-way street.''

Sink spoke with The Miami Herald recently about her take on Florida's insurance market chaos and possible solutions a few days before her inauguration.

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.

Q: Many are saying that state-run Citizens Property Insurance is the root of all evil, especially those staring at bills that have doubled and tripled in the past two years. Do you see Citizens as the problem or a symptom of the current crisis?

A: It's definitely the symptom. I would personally like to see all Floridians get insurance from the private market.

I just came back from the NAIC winter meeting. I purposely set about to talk to some of the larger property insurers operating in Florida. Unfortunately, what I heard was that many are going to continue reducing their exposure in the Florida market. That's very bad news. We have seen a number of Florida-based companies start up, but they are small. And we're not seeing any large property insurers knocking on our doors, wanting to do business here.

I'm in the process of engaging some of the other insurance companies [that] don't operate in Florida. I want to start conversations with them after I take office.

Q: Are regulators and legislators ready to push forward for a federal -- or at least a regional -- catastrophe fund?

A: With Katrina, we could see just how bad a bad storm could be. It has people very skittish about investing in markets that are subjected to that kind of devastation and have no federal backstop.

We have to continue to explore the federal and regional catastrophe fund as a backstop. [At the NAIC meeting,] I talked to most of the insurance commissioners from Texas around the Gulf Coast, and up the East Coast through the Carolinas and Massachusetts. They're all having problems in their insurance markets, and they're all very interested in exploring the possibility of a regional, if not a federal, catastrophe fund.

We definitely have the environment where we can make it happen. I was very encouraged to hear that people are ready to talk.

It may not provide relief for Floridians this year. But certainly in the intermediate and long term, it could be just what the doctor ordered to get more private insurers back into our state.

Q: How much can reasonably be accomplished during the special session that starts next week -- and is even a slight reduction in rates possible?

A: Expanding our Cat Fund to make cheaper reinsurance available could very well result in a slight reduction of rates.

The companies at the NAIC indicated to me there would be more capacity in the reinsurance market this year. I'm hearing 10 [percent] to 15 percent decrease in the rates for '07.

The proof of the pudding will be if we consumers see those reinsurance rate decreases, however modest, flow right through the policy pricing.

Q: Can the Legislature or the state's insurance regulators require insurers to pass along those savings?

A: We have an insurance commissioner in this state. He approves the rates. I think our insurance commissioner needs to hold the feet of the insurance companies to the fire, especially those who are taking advantage of the state-sponsored Cat Fund.

Why have a state-sponsored program if our citizens aren't going to achieve the direct benefits from it? Then it's just profit money going back into the pockets of the insurance companies.

That's just not the intention of us putting our good state name at risk for no benefit to our citizens. To me, that's the bottom line.

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