Shutter Diplomacy: Conn. Regulator Plans Coastal Insurance Forum

By | September 7, 2006

Connecticut Insurance Commissioner Susan Cogswell plans a public forum on Sept. 21 to air concerns over availability of property insurance in the state’s coastal areas.

The forum is being called following reports of tightening insurance availability and the actions of one insurer, Andover Companies, which is requiring some of its coastal insureds to install shutters if they want their policies renewed.

Details as to time and place of the forum have not yet been set, Amy Lazzaro, chief of staff for Cogswell, told Insurance Journal.

Cogswell approved rules allowing Andover Companies 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 one percent of Andover Companies’ policyholders.

However, Connecticut Attorney General Richard Blumenthal has called upon Cogswell to reconsider her approval of Andover Companies’ guidelines. He has also issued subpoenas to Andover Companies and other insurers he suspects might be violating state laws.

According to Lazzaro, 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.”

She said the department’s property casualty division 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.

Lazzaro said that 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.

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

Blumenthal’s subpoenas order the companies to substantiate their reasons for requiring the shutters, which he said cost as much as $100,000 a home. He said some insurers plan to increase deductibles on policyholders who fail to put up shutters.

“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.”

In addition to Andover Companies, the other companies subpoenaed by Blumenthal 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 Corporation, Unitrin, Inc., and Lumbermen’s Mutual Casualty Company.

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

Blumenthal maintained that Andover and other insurance companies are imposing “unprecedented and unreasonable requirements” on homeowners.

He urged Cogswell to carefully consider the interests of homeowners before acting on deductible increase requests he said are pending before her office.

Blumenthal has been joined by Speaker of the House James A. Amann, D-Milford, in asking Cogswell to reconsider her approval of new guidelines for Andover Companies.

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. While shutters may help protect against significant damage in gale force winds, there is no financial justification for such a significant cost as a mandatory condition of insurance, Blumenthal and Amann maintain.

“This standard is unfair, unreasonable and unprecedented – and potentially illegal,” Blumenthal said. “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.

He suggested the shutter guidelines could have economic implications beyond individual homeowners. “Equally troubling is the potential impact on our local and state economy. This requirement is effectively an abrupt notice of cancellation for these homeowners because the insurer cannot expect most of the policyholders to comply with this extraordinary request. Approving this standard puts Connecticut at the forefront of unfair, unjustifiable insurance standards – far from consumer protection,” he maintained.

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 property and casualty insurance policy, Blumenthal wrote to Cogswell. Rather, a number of companies have premium or deductible incentives for policyholders who choose to install shutters.

In her bulletin to insurers, Cogswell has said she recognizes the need of insurers to control exposures in coastal communities but reminded them that they are prohibited from refusing to write risks solely because of their location near a coast and that what they do in the field must conform to their guidelines on file with the state.

“The department is aware of the serious issues that exist in the industry with respect to the increased costs of offering homeowners insurance in coastal areas of this state, ” Cogswell stated in one bulletin. “These increased costs result from a number of factors impacting the marketplace including the increased costs of securing reinsurance coverage and the predictive weather modeling that indicates an increased likelihood of a severe storm event occurring in the northeast coast of the United States.”

However, Cogswell warned, if companies have underwriting guidelines in which homeowners coverage is generally refused to risks located within a specified number of feet from the coast or shoreline, without consideration of other legitimate underwriting criteria, such guidelines would violate state laws and regulations. Such actions by insurers could also trigger unfair trade practices act, she noted.

She advised all insurers that any action being taken to nonrenew, cancel or refuse to write new business “other than in accordance with their underwriting guidelines on file and approved by the department” will be considered a violation of state laws.

She further advised not to direct their agents, either verbally or in writing, to refuse or otherwise avoid accepting business that meets the requirements of their filed and approved coastal underwriting guidelines.

In another notice, Cogswell reminded retail agents of their obligation to first attempt to secure homeowners coverage for risks through admitted carriers before placing them in the surplus lines market. An agent must establish that the risk has been declined by three licensed insurers that customarily write homeowners and the insured must be notified of these declinations.

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