Conn. Clamps Down on Shutters; Seeks Coastal Policy Alternatives

Home insurers in Connecticut may no longer require permanently installed storm shutters as a condition for writing or renewing policies but must offer consumer choices of loss mitigation controls and deductibles, according to a report on coastal insurance issued by Connecticut Insurance Commissioner Susan Cogswell.

Citing an availability problem for coastal residents, Cogswell is also recommending that the state create a voluntary Coastal Market Assistance Plan (C-MAP) to supplement and be run by the existing FAIR Plan residual market insurer. The C-MAP would be an alternative for those homeowners who cannot afford loss mitigation measures and deductibles, or do not want an excess and surplus lines policy, but who want more coverage than the FAIR Plan policy currently offers.

But if the voluntary approach of a C-MAP does not work, she will recommend that the FAIR Plan expand to offer a full homeowners policy.

Also, she said she would submit legislation giving her department authority to disapprove excessive personal property insurance rates within a competitively-priced market and to increase the limits covered by the state guaranty fund from $300,000 to $500,000 to reflect increasing home values.

Cogswell said her department has concluded “there is an availability problem for homeowners insurance within the admitted markets for homes located within 1000 feet of the coast.” Her recommendations are meant to deal with the problem before it gets worse.

“Consumers living near the coast certainly recognize they need to take measures to protect their homes. At the same time, we are expecting carriers to recognize when residents take these measures by reducing premiums or deductibles,” said Cogswell.

The report and recommendations are based on a public hearing she held in September following a public outcry over a decision allowing one insurer, Andover Insurance, to require homeowners living within a mile from the coast to install special storm shutters on their homes or face non-renewal of their policy.

“I clearly heard the frustration and anger from homeowners when the department approved Andover’s shutter guidelines,” said Cogswell.

The report found that 59 percent of the market imposes mandatory mitigation requirements of some type for new business while the remaining 36 percent are offering a choice to new customers – mitigation or increased deductibles or no requirements at all.

Only five percent of the market requires mandatory shutters for renewal business. The remaining 91% of the market is offering a choice or imposing no requirements at all.

At the September forum, coastal residents complained about the cost of installing shutters and questioned the catastrophe models used by insurers to gauge storm exposure.

Also, agents relayed anecdotal evidence that “insurance carriers are not writing homeowners insurance policies along the coast in violation of their filed underwriting guidelines,” according to the report.

Highlights of the recommendations from report include:

The department will establish new guidelines to evaluate insurers’ coastal homeowners’ insurance underwriting rules. Companies will no longer be able to require permanently installed storm shutters as a prerequisite to new or renewal business. They must offer consumers choices – choices in the types of loss mitigation controls they accept and choices in deductibles.

For newly written business within 2,600 feet (half mile) of the coast, consumers will be allowed to use a variety of loss mitigation measures recommended by the Institute for Building & Home Safety, including plywood shutters or impact resistant glass. Carriers may also apply a hurricane deductible. If both loss mitigation measures and deductibles are imposed, companies are required to reduce a consumer’s premiums or deductibles.

Companies will be able refuse to issue new policies for consumers who fail to take any of the mitigation measures.

For properties located more than 2,600 feet from the shore, the department will review, on a case-by-case basis, loss mitigation methods and hurricane deductibles which shall not exceed two percent. If a company uses a combination of mitigation measures and deductibles, it must reduce the consumer’s premium and/or deductible.

For renewal business, the department will no longer allow companies to non-renew policyholders for failing to undertake mitigation measures. Companies must offer policyholders choices at renewal: consumers can implement loss mitigation measures or be offered a deductible. As with new business, if a consumer implements mitigation measures and takes a deductible, companies are required to reduce a consumer’s premiums and/or deductibles. If a consumer opts not to take either option, companies can then non-renew that policy.

All insurance companies with pending coastal guidelines must withdraw them and re-file with the department to be in compliance with the new criteria.

The department will request that the Governing Board of the FAIR Plan create a Coastal Market Assistance Plan (C-MAP) similar to that which has been implemented in New York. Currently, homeowners have two options if they are unable to find homeowners’ coverage in the admitted market. They can purchase coverage through an excess and surplus lines carrier or purchase a dwelling fire policy through the FAIR Plan. The department recommends adding another option for consumers to ensure that an adequate “safety net” is available to them. The C-MAP will be an alternative for those homeowners who cannot afford loss mitigation measures and deductibles, or do not want an excess and surplus lines policy, but who want more coverage than the FAIR Plan currently offers.

If there are not enough participating companies to make the C-MAP a workable solution, the commissioner will request that the FAIR Plan offer a full homeowners’ insurance policy. The department’s hopes that the C-MAP will be available to consumers with 90 days.

The department will submit legislation to give it authority to disapprove excessive rates pertaining to personal risk insurance and to increase the amount covered by the Connecticut Insurance Guaranty Association from $300,000 to $500,000.