Conn. caught up in coastal insurance shutter controversy

Connecticut Insurance Commissioner Susan F. Cogswell and Andover Insurance Company agreed to suspend for 90 days the implementation of a department decision allowing the insurer to cancel the policies of homeowners who fail to install storm shutters.

The moratorium, which began Sept. 6, followed talks between Cogswell and Andover officials, initiated at the request of Gov. M. Jodi Rell. Rell said she was concerned that coastal homeowners would have their policies canceled before being able to obtain other coverage.

The agreement also came after the issuance of subpoenas to insurers by state Attorney General Richard Blumenthal, who is questioning some insurers’ coastal underwriting practices.

The moratorium bought Cogswell some time to further evaluate the extent of homeowner insurance availability along the state’s coastline and hold a public forum in New London.

Cogswell also asked that the entire insurance industry agree to a 90-day delay in implementing new coastal underwriting guidelines — such as requirements for shutters or a higher deductible — while she completes her study.

“I will use the next 90 days to carefully study this issue,” Cogswell said. “I am trying to balance the needs of policyholders with the industry’s responsibility to adequately plan for the financial exposure companies face by insuring coastal communities. I will use the next 90 days to study the coastal marketplace to ensure that adequate coverage is available.”

Last month, Cogswell approved rules allowing Andover to nonrenew policies for insureds residing within three-quarters of a mile from Long Island Sound or portions of major rivers if they do not install shutters within 45 days. She decided the guidelines did not violate state regulations against underwriting based solely on geographic location and would only affect about 1 percent of Andover’s policyholders.

However, Blumenthal has called upon her to reconsider that approval and he has issued subpoenas to Andover and other insurers he suspects might be violating state laws.

According to Amy Lazzaro, Cogswell’s chief of staff, the department is monitoring the situation closely and while it appears that a number of smaller mutual insurers are tightening their underwriting on the coast, “we believe there’s still availability.”

Despite a bulletin urging insurance agents to report any insurers that might be underwriting based solely on geography, few if any complaints have come in from agents, Lazzaro told Insurance Journal.

She said the department is reviewing underwriting guidelines that insurers must file with the state to make sure they are justified by actuarial data and comply with regulations. While insurers are not required to wait until the state signs off on their guidelines before implementing them, most insurers do wait, Lazzaro said.

As a precautionary move, Cogswell also issued bulletins reminding insurers of the state’s rules against geographic-only underwriting and producers of their obligations to search the standard market before placing risks in the surplus lines market.

AG’s subpoenas
Blumenthal maintains that Andover and other insurance companies are imposing “unprecedented and unreasonable requirements” on homeowners. He said that along with Andover’s nonrenewing, some insurers plan to increase deductibles for those who fail to put up shutters.

The attorney general’s subpoenas order 10 companies to substantiate their reasons for requiring shutters. In addition to Andover, the other companies subpoenaed are: Main Street America Group Holdings, Met Property & Casualty Insurance Co., Vermont Mutual Insurance Group, New London County Mutual Insurance Group Co., Fireman’s Fund Insurance Co., The Allstate Corp., Unitrin Inc., and Lumbermen’s Mutual Casualty Co.

He has also subpoenaed two reinsurers: Lloyd’s America Inc. and the Hartford Steam Boiler Inspection and Insurance Co.

“I need to know whether these outrageous conditions reflect coincidence or coordinated behavior,” Blumenthal said. “If these onerous and potentially illegal requirements result from concerted activity among carriers or their reinsurers, they may violate our antitrust laws. My office will aggressively prosecute any anti-competitive practices that may be shown.”

Blumenthal has been joined by Speaker of the House James A. Amann, D-Milford, in asking Cogswell to reconsider the shutter guidelines and to closely scrutinize deductible increase requests he said are pending before her office.

Blumenthal and Amann claim that about 2,000 consumers could be forced to spend as much as $100,000 to comply with the standard or lose their coverage.

“This standard is unfair, unreasonable and unprecedented — and potentially illegal. The demand is unconscionable and unacceptable that homeowners — many of them decades-long residents living on fixed incomes — pay $100,000 within 45 days or lose their insurance coverage,” Blumenthal charged.

Amann expressed concern about further restrictions. “After Hurricane Katrina hit the Gulf Coast, we saw many insurers pull the rug out from under their clients by denying storm claims. With some Connecticut insurers now planning ways to drop coverage even before a storm hits here, it’s time to step in and question where the industry is heading,” Amann said.

A recent Insurance Information Institute survey of hurricane and windstorm insurance did not find a single state along the East coast where an insurer required shutters as a mandatory criteria for issuing a policy, Blumenthal wrote to Cogswell. Rather, a number of companies have premium or deductible incentives for policyholders who install shutters.