January 07, 2010

Using Lloyd's of London as an example, New York Governor David A. Patterson has announced that the state plans to create an international insurance exchange that would specialize in the coverage of complicated risks that many traditional U.S. carriers may shy away from. Governor Patterson made the announcement as part of his 2010 State of the State address.From the New York Times:

Such risks are hard to insure because they are unpredictable and potentially catastrophic. As a result, many companies go offshore for such coverage, usually to Lloyd's or to other exchanges in Bermuda and Dublin. Currently, about 50 percent of the insurance placed through Lloyd's originates in North America.

Governor Paterson is hoping to keep some of that business at home because insuring complex risks can be very profitable. The governor announced his plans in his State of the State address, calling it "part of a bold and decisive plan to rebuild our state's economy."

The New York Insurance Exchange (NYIE) would operate in a manner similar to Lloyd's of London, according to the governor's office.

From a 2010 State of the State fact sheet:

Groups of investors, such as hedge funds, private equity funds, investment banks and traditional insurance companies, would come together to form syndicates and become members of the exchange. Brokers would then bring large property or reinsurance risks to the "floor" of the exchange to seek bids from investors to take on the risk.

Citing officials associated with the project, the NYT reported that the project could generate 2,000 to 3,000 jobs. The exchange would be regulated by the state, which also tried to set up an exchange in the 1980s. That attempt failed, but laws allowing for the creation of an exchange remain on the books.

"By bringing together buyers and sellers of complex commercial insurance, the exchange will reaffirm our status as the hub of international trade and finance and it will also curtail the unregulated transactions that devastated the global economy," Governor Paterson said in his address. "New York was the epicenter of so much that went terribly wrong in 2008. It is our responsibility as New Yorkers to lead in the rebuilding and reform of these vital global markets."