Faced with what he describes as dire financial prospects for the state and New York City, New York Gov. David Paterson announced, among other things, that New York is going to pursue the establishment of an insurance exchange.
The sobering assessment of the state’s financial position was made during Paterson’s state of the state address.
In a conference call following the address, representatives of the Governor’s staff and New York Insurance Superintendent James Wrynn tried to detail the proposal. Wrynn said that the Exchange would be based on the concept of syndicates of private capital from multiple sources including hedge funds, wealthy investors and private equity firms similar to Lloyds of London.
Although he could not say specifically how much money would be generated, Wrynn did note that half of the money received by Lloyds comes from North America. And, he continued, even a portion of that would result in substantial revenue for New York.
Wrynn predicted that the venture would bring both jobs to New York City where a headquarters is anticipated as well as upstate where jobs from back office operations could be created. He noted that the Exchange would meet the need for more insurance for complex risks including reputational, cyber, terrorism and climate change risk.
This is the third effort to create a successful insurance exchange in New York. The first attempt ran from 1980-87. A second attempt was contemplated by former Superintendent Eric Dinallo but was scuttled by a financial meltdown that had Dinallo and the insurance department running up to the Federal Reserve, sometimes on a moment’s notice, to address issues that had arisen.
The exchange does not contemplate business in life settlements but could conceivably make it possible for life insurance companies to more easily participate in reinsurance or facilitate the sale of very large policies similar to what Lloyds currently does, according to Department spokesman David Neustadt.
The amount of money the exchange would generate and when it would be up and running is not known at this point, according to Wrynn. However, he did say that work on its development would start immediately. When asked whether a soft market cycle would impact efforts, Wrynn said that he anticipated that when it was up and running the market cycle would be harder.
And, when asked if the state would become the insurer of last resort, Wrynn said that it was not intended to be the case and that it was anticipated that the Exchange would be self-sustaining.