What do insurers think of New York Insurance Superintendent Eric Dinallo's proposal to require property carriers doing business in the state to set aside money for a catastrophe reserve fund that would accumulate over the years to pay for future hurricane losses?
Reactions have been generally positive, but most interested parties would like to see more information before endorsing the plan, and some believe a federal tax exemption is required to make the idea viable.
N. Stephen Ruchman, past president of the Professional Insurance Agents of New York, said of Mr. Dinallo's plan: "I believe in concept it's a good idea, but in actuality, I don't think it would ever fly." He said such a plan has to come from the federal government because the industry needs tax credits that only Congress can provide.
Citing another concern, Mr. Ruchman added, "I believe that if Superintendent Dinallo is successful in pushing his plan through, it will help the giant companies, and it will put smaller companies out of business, because these big boys have the money to put into reserves. The small companies don't, and as a result, you will create a tremendous hardship on these small companies."
Dick Poppa, president and CEO of the Independent Insurance Agents and Brokers of New York, said his association has not taken a formal position, "but I would say that, from our perspective, if it does invite more insurance companies into the market, then we're supportive of it, and interestingly, we've heard mixed reviews from the insurance companies."
"Some of the carriers have said they think it's a good starting point and would be supportive of it," he added, "and then we've heard others that said because [Mr. Dinallo] cannot create the tax-deferred aspect of it, they're not supportive of it." However, he said the plan is "very consistent with what we would like to see happen."
Michael Moriarty, deputy superintendent for property and capital markets at the New York Insurance Department, understands the industry's objections to New York going it alone on cat reserves. "I think the most valid concern that has been raised to date is that this should be done on a national level and not on a state level," he said.
He explained that 10 or 20 different states with similar but different funds would be "a nightmare for insurers in terms of logistically reporting and accounting for that." He noted that one option is to go to the National Association of Insurance Commissioners to get something done on a national basis.
On the tax deferment issue, Mr. Moriarty said the department would support a federal tax deduction for cat reserves but noted Mr. Dinallo is only proposing the establishment of a reserve net of any taxes paid. "I don't think there's any reason not to go forward with the net premium that's not used for catastrophes," Mr. Moriarty said.
As for the next step, Mr. Moriarty said there will be internal discussions at the department before moving forward. "We still believe that the concept is structurally right," he added.
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