Serio: Pressure On Reinsurers Needed

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By Sam Friedman

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NU Online News Service, June 11, 11:10 a.m. EST,Atlantic City, N.J.?Primary insurers need to be moreaggressive and exert some of their market muscle to push reinsurersto provide reasonable coverage for terrorism-related exposures, NewYork's insurance superintendent declared here this week.

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Greg Serio, whose insurance department has refused to grantdomestic carriers an automatic right to exclude terrorism fromtheir policies in New York, said that reinsurers leaving theirprimary clients bare on terrorism are "starting to test thepatience of the regulatory community."

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He said it was up to primary insurers to stop acting likeinnocent bystanders with no influence over the market, and to startpushing harder for a reasonable accommodation from reinsurers onterrorism coverage.

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"Reinsurers are the tail wagging the dog on this issue," saidMr. Serio, during a panel discussion here on the state of themarket at this weekend's annual meeting of the ProfessionalInsurance Agents of New Jersey and New York, which was moderated bythis reporter.

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"The traditional market is moving towards being the odd manout," he said. "They are not pushing back on reinsurers, which arecalling all the shots."

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Mr. Serio said he was skeptical that any amount of regulatorycapitulation on terrorism exclusions would be enough to satisfyreinsurers. He added that he was concerned that even if reinsurerswere somehow enticed to reenter the market by approving exclusions,"in the end, what would be left in terms of coverage?"

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While emphasizing that "this is by no means a paternalisticinsurance department trying to tell the business what's good forthem," he said it was the department's job not to let insurers offthe hook without first assuring that an honest effort has been madeto provide reasonable coverage at an affordable price.

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In refusing to grant a blanket terrorism exclusion, he said, "weare challenging the industry to come up with another way to coverthe risk."

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At the same time, he added, he was not neglecting hisdepartment's duty to assure that carriers are around to pay claims."We haven't lost sight of the fact that we have to balanceaffordability and availability of coverage with solvency concerns,"he said, emphasizing that the key word is "balance."

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Insurers attending the PIA conference were skeptical about thesuperintendent's admonishments, but none were willing to dismisshis assertions on the record.

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Declining to be quoted by name, one insurer contacted after thepanel discussion said that Mr. Serio's challenge to put pressure onreinsurers to provide coverage is easier said than done. A secondinsurer said that even if coverage is made available, the costwould probably be prohibitive.

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Mr. Serio noted that New York is revisiting its captive law andmight allow more group captives in an effort to offer insurancebuyers an alternative market for terrorism coverage, where it "maybe easier to shape programs to satisfy reinsurers."

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He added that Congressional passage of a bill establishing afederal terrorism insurance backup would go a long way toalleviating the availability crisis.

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"Whether you call it national security or economic good sense,there is a point where the insurance industry's responsibility endsand where the government's responsibility begins, especially whenyou are talking about a man-made event," he said.

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