NY Parametric Insurance Bill and CFTC Jurisdiction

New York bill S.9420 / A.10344 would authorize New York insurers to offer “parametric insurance” to retail consumers. The bill defines parametric insurance as “insurance against the occurrence of a weather-related event, such as windstorm, flood, snow, wildfire, tornado, cyclone, or earthquake, where the indemnification is based on the proximity and magnitude of the event as measured and reported by a state or federal government agency.” As explained in the accompanying Memorandum in Support of the Legislation:

A parametric insurance product is a contract that insures a person against the occurrence of a nearby event by paying a set amount based on the magnitude of the event, rather than the actual amount of the loss or damage. An example is a contract that pays an insured $5,000 if there is a category 3 hurricane where the person lives regardless of whether the insured suffered a loss or damage.

Earlier this week I expressed my concern to Governor Hochul, Department of Financial Services Superintendent Harris, and the bill’s sponsors that this proposed legislation, currently awaiting the Governor’s signature, may run afoul of Dodd-Frank as explained here → link. Specifically, “parametric insurance” as defined in the bill would not satisfy the Commodity Futures Trading Commission’s “safe harbor” exemption for traditional insurance products. Accordingly, parametric insurance products authorized under this bill may be regarded as a “swap” subject to the CFTC’s jurisdiction (including limitations on the sale of those products to retail consumers).