New York regulators are pursuing a reincarnation of the New York Insurance Exchange, a Lloyd’s of London-style insurance market, which lasted for several years the last time it was tried.
Insurance Superintendent James Wrynn said the exchange would help fill demand for complicated, large or risky insurance contracts and could help retain some of the dollars that currently flow into Lloyd’s.
New York was one of three states to experiment with exchanges back in the early 19080s with limited success.
Illinois launched one that is still in business, although it’s operating with only one syndicate.
The original New York Insurance Exchange opened in 1980 but shut down in 1987, a collapse attributed to weak capitalization, high claims and the soft market.
Florida also launched one in Miami-it was called the Insurance Exchange of the Americas (IEA), reflecting the hope of its backers that it would capitalize on the city’s international business reputation. For a short while, it worked. By 1986, premium volume was up to $262.7 million and there were 25 syndicates.
But trouble began after an audit of 1986 results disclosed under-reporting of losses and a surprise shortfall of as much as $15 million. The IEA was unable to get its act together after that and its doors were closed later that year.
Skeptics question whether New York will be able to attract capital in today’s economy and whether it is needed in today’s marketplace.
But some people are enthusiastic, maintaining that lessons can be learned from the past failures and the industry and technology have changed tremendously over the last 30 years.
An online poll by InsuranceJournal.com found 150 readers split over the idea of restarting the New York facility. Forty-two percent opposed the restart because the timing is not right (11%) or it didn’t work before (31%). A similar percentage backed the restart because it might help keep accounts and jobs in the U.S. (20%) or because it could be started and be ready when the market turns (22%). Sixteen percent were not sure.
For others, it’s too early to judge New York’s venture. “It’s premature, probably, to determine exactly what structure it will take and where the capital will come from and what lines of business they’re going to write and how big an impact they’re going to make,” said Bruce Bowers, who runs National Risk Solutions, a division of national broker Hull & Co.
Bowers is in Florida, where he is not alone in remembering the Miami facility, which he said served a real need before “the wheels came off.”
Out of 25 Florida surplus lines agents surveyed by Insurance Journal, 10 said they would find a revived New York “potentially useful.”
But asked if their state should follow New York’s lead and consider a new exchange, 21 Florida agents said no.
Tom Enright of Enright & Wilson is among the Florida skeptics. “You would need a large investment and many potential markets and I don’t see that happening,” Enright said.
Another thinks it’s unnecessary. “There are plenty of resources within the wholesale community to obtain markets. I don’t believe an Exchange would create anything new to the Florida market,” the agent said.
Florida should let history be its guide, according to another. “Florida has proved it is incapable of properly regulating insurance companies and the exchange. Politics and money rule and the ultimate result will be the same as the IEA; an embarrassing disaster,” the agent stated.
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