You asked for a list of insurance companies authorized to write homeowners insurance policies in Connecticut that have filed underwriting guidelines that include a storm shutter requirement with the Connecticut Insurance Department. You also asked (1) for a list of insurers that are now in financial risk, as determined by the department; (2) which companies will be negatively impacted if a major storm causes significant damage to their insureds' properties; and (3) if it is discriminatory for an insurer to cancel, not renew, or not issue a policy to a homeowner who does not install storm shutters.

SUMMARY

Many insurance companies licensed to write homeowners insurance in Connecticut are seeking to implement new underwriting guidelines for issuing policies to coastal homeowners. Fearing increased claims associated with such properties because of major storms and hurricanes, insurers are taking steps to raise rates, increase windstorm deductibles, and require policyholders to install storm shutters. In September 2006, the Connecticut Insurance Department reached an agreement with one such insurer, Andover, to delay implementation of new underwriting guidelines by 90 days while it evaluates the availability of insurance along the coast.

The 90-day period ends December 6, 2006, after which the department is expected to release its findings and recommendations. Based upon its review as of November 17, 2006, the department provided a list of companies that appear to have a storm shutter requirement in place. The list is included in this report.

The department is not able to disclose the names of companies that are considered in financial risk based upon the department's review of company financial statements and related documents. Making such information public could put companies in further jeopardy. Company information the department obtains during financial audits and the department's examination working papers are confidential (CGS § 38a-14(j)). Files concerning delinquency proceedings (e.g., for the liquidation or rehabilitation of a company) are also confidential (CGS §§ 38a-913 and 38a-913a).

The department is not able to give a specific assessment of which particular companies will be negatively impacted if a major storm causes significant damage to their insureds' properties. In general, all insurers are at risk of exposure if a major storm causes property damage in Connecticut. Some companies may be impacted more than others if they insure a higher concentration of insured properties along the coast.

Connecticut law requires insurance companies to treat all Connecticut homeowners fairly. Underwriting guidelines may classify risks. However, refusing to issue homeowners policies solely because the property is located in a particular geographic area, if committed with such frequency as to indicate a general practice, is a defined act of unfair discrimination (Conn. Agencies Regs. § 38a-824-3(a)(1)).

Some information included below is taken from the Connecticut Insurance Department's Bulletins PC-33 and PC-43 issued in 2000 (copies enclosed).

SHUTTER INSURANCE REQUIREMENT BACKGROUND

Homeowners insurance policies insure owner-occupied homes against damage to building and contents and against legal liability for bodily injury or property damage caused by an insured. Insured building and contents losses are subject to a policy deductible, regardless of the cause of the loss. A policy may also include separate deductibles that apply to losses caused by wind, hurricane, or high windstorm. These deductibles became more common after the catastrophic hurricane losses in Florida

and the East Coast in the early 1990s. Separate deductibles are used to control an insurer's exposure to catastrophic loss, moderate the price of coverage, encourage homeowner safety, and improve coverage availability.

Some companies have specific underwriting requirements for coastal properties, such as storm shutters, flood policies, or building code standards. If a property does not meet these coastal underwriting requirements, then a hurricane deductible may be implemented in lieu of meeting the coastal underwriting requirements. Wind, hurricane, and windstorm deductibles are either a flat dollar amount or a percentage of the dwelling's amount of insurance. Flat deductibles range from $500 to $10,000. Percent deductibles range from 1% to 5% of the dwelling coverage amount. The department will not approve any deductible over 5%.

Any company that adds a hurricane deductible on a renewal of an existing policy must send policyholders a notice 60 days before the renewal date. The department reviews such notices for compliance with law, content, and clarity.

In August of 2006, the department became aware of companies that may be improperly refusing to insure policyholders located in coastal communities. The department issued notices to insurers and insurance producers (agents and brokers) reminding them of the information in Bulletins PC-33 and PC-43, and the statutory requirement that underwriting guidelines used to determine whether or not to underwrite a particular risk (property) be filed with the department. The notices advised insurers that taking any action to nonrenew, cancel, or refuse to write new business other than in accordance with their underwriting guidelines on file and approved by the department is a violation of the statutes.

As of September 6, 2006, Andover Insurance Company agreed to suspend for 90 days implementation of a plan to cancel policies of homeowners who fail to install storm shutters. During the 90-day period, the department is evaluating the extent of homeowner insurance availability along Connecticut's coastline. The commissioner also asked the entire insurance industry to agree to a 90-day delay in implementing new coastal underwriting guidelines – such as requirements for shutters or a higher deductible – while the study is completed.

“I will use the next 90 days to carefully study this issue,” Insurance Commissioner Susan Cogswell said in a September 7, 2006 department news release. “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.”

SHUTTER REQUIREMENTS

By law, insurance companies authorized to write homeowners insurance policies in Connecticut must file their underwriting guidelines with the insurance commissioner (CGS § 38a-689). Department staff is in the process of reviewing company data as part of its study of the coastal marketplace. Based on its review of companies representing over 95% of Connecticut-written premium, the department has provided a list of companies that impose a shutter requirement on new business (i.e., not a policy renewal). Shutter requirements may differ by company. The department is in the process of determining which companies require homeowners to have shutters in order to renew a policy, but it has provided an initial list of those that do not have such a requirement.

Companies with Shutter Requirements for New Business

The companies that have storm shutter requirements for new business are:

Middlesex Mutual

Nationwide

Travelers

Homesite

Quincy Mutual

Allstate

Danbury

Harleysville

Hartford

Safeco

Balboa

New London County

Andover

Chubb

Utica Mutual

Middlesex Ins. Co

Hanover

Unitrin/Kemper

NGM

One Beacon

Encompass

Bunker Hill

Patrons

Atlantic Mutual

Fireman's Fund

Farmers

Amica

Liberty Mutual

Peerless

Companies Without Shutter Requirements

New Business. The following companies appear not to have storm shutter requirements for new business:

Employers Mutual

Horace Mann

Balboa

Providence Mutual

USAA

Farm Family

Central Mutual

Met

Renewal Business. The following companies do not have storm shutter requirements for policy renewals:

Employers Mutual

Horace Mann

Balboa

Providence Mutual

USAA

Farm Family

Central Mutual

Met

Middlesex Ins Co.

Covenant/Arbella

Hartford

Travelers

Chubb

State Farm

Safeco

UNFAIR DISCRIMINATION

Connecticut law requires insurance companies to treat all Connecticut homeowners fairly. By law, the insurance commissioner must adopt regulations to ensure the availability of homeowners insurance by prohibiting unfair discrimination in the availability or sale of such insurance based on location, age, or disparity between replacement cost and market value (CGS § 38a-824). Refusing to issue homeowners policies solely because the property is located in a particular geographic area, if committed with such frequency as to indicate a general practice, is a defined act of unfair discrimination (Conn. Agencies Regs. § 38a-824-3(a)(1)). If companies have underwriting guidelines in which homeowners coverage is refused to properties located within a specified number of feet from the coast or shoreline, without consideration of other legitimate underwriting criteria, it is the department's position that such guidelines show a general practice of refusing to issue insurance solely based on the property's location. Such a general business practice would implicate the Connecticut Unfair Insurance Trade Practices Act.

In addition, the department does not permit insurance companies to implement a hurricane deductible based solely on the property's geographic location. A company may implement a hurricane deductible only as part of a “coastal exception plan” and upon the department's approval (Conn. Agencies Regs. §§ 38a-824-1 to 38a-824-3, enclosed). Bulletin PC-43 identifies the factors needed to support approval of a coastal exception plan, such as a company's over concentration of coastal risks and their potential impact on the company's financial solvency.

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