Property and casualty insurance companies’ decisions to withdraw from certain lines of business, in jurisdictions such as California and Florida, has garnered a great deal of attention in recent months. The Connecticut Department of Insurance (the “Department”) recently published a bulletin clarifying its expectations for prior notice from property & casualty carriers when planning to exit a line of business or discontinue a subline of business. The new bulletin [1] rescinds and replaces a prior bulletin, [2] extending the bulletin’s reach regarding location-based discrimination and “agency-facing applications and other technology, processes (e.g., referrals to underwriters) or communications to producers.”
Background
In the interest of minimizing market disruptions, most states require insurance carriers to provide notice to the regulator before a carrier exits a line of business. Connecticut requires 60-days prior written notice. [3] This requirement applies not only to withdrawal from major lines of business, but also sublines; for instance, if a carrier continues writing the auto line but chooses to withdraw from school buses or taxis, withdrawal from the subline would require prior notice to the Department. Furthermore, if a carrier plans to terminate producer appointments in line with a planned discontinuance, the carrier shall “renew all affected contracts of insurance written by the affected producers for a period of 18 months from the date such action takes place.” [4] These requirements apply to both admitted carriers and authorized nonadmitted carriers. These requirements were communicated in Bulletin PC-34 (December 20, 2000) now rescinded and replaced by Bulletin PC-34-23 which includes these requirements and expands upon them.
Agency-Facing Apps
The new bulletin expands the reach of the prior bulletin by including agency-facing applications. For instance, if a carrier were to shut down an app whereby it interacted with producers resulting in a substantial reduction in a line or subline, such reduction would be viewed as effectively withdrawing from the line or subline requiring prior written notice to the Department. The new bulletin further communicates the Department’s concern that carriers may fail to address underwriting errors in agency-facing apps or use agency-level edits to require underwriting referrals for business that meets the carrier’s filed underwriting guidelines. Such action by carriers may invite investigation by the Department, and if determined to be routine practice, determined to be an unfair trade practice in violation of Connecticut Insurance Law.
Location Discrimination
The new bulletin informs carriers that they “must consider whether such action may constitute unfair discrimination” citing to Conn. Agencies Regs. § 38a-824-3 which prohibits refusing to issue or renew homeowners’ policies “solely because of the fact that the risk is located in a particular urban area or neighborhood, city or town.” This regulation further prohibits carriers from “refusing to issue, refusing to renew, canceling, or limiting the amount or provisions of coverage” solely due to the age of the structure, condition of adjacent or nearby properties, or substantial disparity between replacement cost and market value. Reference to the location discrimination regulation was not included in the prior bulletin. Its inclusion in the new bulletin could signify the Department’s heightened attention at this time.
Conclusion
Like other states, Connecticut is concerned about the potential disruptions to the insurance marketplace when carriers withdraw from the market. By expanding the reach of the bulletin on withdrawal from property & casualty business lines or sublines, the Department has communicated its concern that carriers may be quietly exiting business lines or sublines by winding down their use of agency-facing apps and thus clarifying that such activity requires prior written notice. The specific inclusion of location discrimination in the new bulletin further communicates the Department’s concerns of disruptions to the marketplace as carriers withdraw from specific lines or sublines of business, adversely impacting specific communities.
[1] Conn. Ins. Dept., Bulletin PC-34-23, Notice to Commissioner of Intent to Discontinue or Substantially Reduce a Line or Subline of Business, September 19, 2023.
[2] Conn. Ins. Dept., Bulletin PC-34, Notice to Commissioner of Intent To Discontinue Line of Business, updated and reissued December 20, 2000.
[3] Conn. Gen. Stat. § 38a-44.
[4] Conn. Gen. Stat. § 38a-709.
