Dinallo Seeks 'Exchange' Of Ideas

Should New York resurrect its long-defunct Insurance Exchange? That's the question being posed by Superintendent Eric Dinallo, who is seeking input from the industry about the feasibility and desirability of the idea. I remain intrigued, though skeptical about the timing.

I'm always in favor of more competition and sources of coverage, which ultimately helps the buyer and keeps the market sharp and efficient.

But while the rationale for creating a Lloyd's-like underwriting marketplace on this side of the Atlantic is enticing–just as it was in the 1980s, when the fledgling exchange imploded–I must admit I'm extremely wary about whether enough capital can be raised to launch a significant new facility in this tight-fisted credit market.

Mr. Dinallo first floated the notion of reanimating the Insurance Exchange about a year ago, and the concept was hailed by Gov. David Paterson in a speech before a Lloyd's-sponsored dinner last June.

While relaunching the exchange would be relatively easy to pull off from a legal standpoint, since the enabling legislation is still on the books, generating the money to make it viable is another story.

It remains a great potential alternative to Bermuda, Mr. Dinallo suggested during a dinner speech earlier this month before the annual Property-Casualty Insurance Joint Industry Forum.

Even though the economy is in crisis, Mr. Dinallo argued that with prices in the traditional insurance market starting to harden, the stage is set for a revival of a new specialty exchange. Plus there is a much wider cast of characters available to back such a facility than was the case when the new market was first floated.

One of the reasons [the exchange] failed in the 1980s is because it was made up of just a bunch of insurers who put on masks in a masquerade ball. It was really the same capital funding all the other risks through traditional insurance, he explained.

Today, he added, even with capital harder to come byand with potential new suppliers, such as hedge funds, having financial problemsthere remains enough private equity investors seeking sound opportunities to make a well-managed insurance exchange viable.

We also have a lot more technology and modeling capabilities at our disposal than we did back then, he said.

With people beating the drums about the tax disparity with Bermuda, this would be a huge opportunity for New York to come out as an insurance market leader, according to Mr. Dinallo.

He urged industry officials to contact his office with feedback. Is this a good idea or bad idea? We want to explore that this year, he said.

What do you folks think?