The proposed bill also would allow for the formation of a pure captive by New York City to provide coverage for liability relating to or arising from cleanup activities in or near the World Trade Center site in response to the terrorist attacks of Sept. 11, 2001.

"The governor's program bill is already introduced in the Senate and is under discussion with both the Senate and the Assembly," said Mr. Serio.

The bill was introduced by Sen. James L. Seward, R-Oneonta, chairman of the Senate Insurance Committee.

Mr. Serio told National Underwriter that the bill is similar to Vermont's law, but breaks away by specifically authorizing state or governmental entities to also form and participate in captives.

For the traditional captive market, "We thought it would be best to maintain a parallel between New York and Vermont, both in terms of structure, options and taxation," he said.

He added that the bill has been around in "one form or another" for several years. "So I think we're already starting the discussions at a pretty advanced stage. We think the New York marketplace needs this bill done this legislative session."

The new bill, SB 7691, would allow for the formation of single parent captives and for participation in a group captive. It would reduce the net worth threshold for pure captives to $25 million from $100 million. Public entities that meet appropriate standards will also be permitted to form captives.

New York's first captive bill was signed by Gov. George Pataki in August 1997, authorizing the formation of captive insurance companies in the state.

Mr. Serio said the legislature is making an effort to understand how captives would work, "particularly since we're broadening out in a pretty liberal way the applicability of the captive statute in terms of it applying to small- and medium-size businesses, as well as the large businesses that have traditionally been allowed to form captives," he said.

Meanwhile, he told an audience of insurance buyers at a meeting of the New York Chapter of the Risk and Insurance Management Society last month that "600 captives are sitting in Vermont, including a great many from New York."

Government agencies from New York "also go to Vermont to get their insurance, and that is insane. We should be able to do it right here in New York and that's what our bill does."

Mr. Serio told NU that some members of the legislature have expressed concern about the interests of agents and the carriers. "But as they assess the condition of the market, I think they will come to see the need to have [captives] as an option for New York businesses."

The irony, he said, is that "for the amount of concern expressed both by the traditional industry and by the agents with respect to the captives, in fact, New York has a captive."

He noted that insurers such as American International Group also have captives. "So we think that some of the criticism of the proposal is disingenuous because so many of them have been jumping on the captive bandwagon and have been making captives a regular part of their business strategies."

The legislation also includes a piece which would allow a captive to be formed to cover the liabilities rising out of the cleanup of the World Trade Center after the terrorist attacks of Sept. 11.

The United States Congress recently passed legislation directing the Federal Emergency Management Agency to provide New York City with up to $1 billion in coverage for the City and its contractors for claims arising from debris removal performed after the collapse of the World Trade Center buildings.

The federal legislation also directs the City to use the funds to establish a captive or other mechanism, according to the office of the governor.

The important part of the World Trade Center piece, Mr. Serio explained, is that it is retroactive.

"The coverages that we have been trying to obtain have always been with the understanding that they would all be retroactive until sometime the afternoon of Sept. 11, 2001," he said. "The needs of the city are necessarily that it be retroactive to when the contractors first came on, because it is to the benefit of the city and the contractors that were doing this."

He explained that the captive is a pure, single parent captive.

Mr. Serio said the department has had an overwhelming amount of interest from the business community about alternative risk financing mechanisms.

"Not only have we been inundated with calls and requests for market alternatives, but we have a great number of medium- and small-sized businesses that are looking to either pool or create group operations for creating reciprocals and forming captives," he said.

Interest runs from contractors and builders, to supermarkets and truckers he said, adding, "You name the business sector and I will tell you they have expressed an interest in captives and other forms of alternative risk financing."

Response from the community has been "a groundswell, not coming from the department and the administration, but coming from the community," he said. "And that is what makes this different from years past," he concluded.