Connecticut Lawmakers Weigh Lifting Surplus Lines Renewal Rule

Connecticut’s Insurance and Real Estate Committee has advanced a surplus lines insurance measure that the industry says would lift an unnecessary administrative burden but the state insurance regulator believes would unnecessarily lessen consumer protections.

The bill would relieve surplus lines brokers of the need to obtain declinations from three admitted carriers before renewing a policy in the surplus lines market. The requirement would be removed for renewals only; it would remain for placement of new business in the surplus lines market.

The measure (HB-6621) gained a 11-1 favorable vote from members of the committee.

Surplus lines policies are not reviewed by the insurance department, nor are they protected by the state’s guaranty fund. While brokers can only pursue a surplus lines policy after being denied by three admitted carriers, there is an exception. The declinations are not required if the policy sought is on the state’s “exportable list” or “white list” of coverages that the insurance commissioner deems “generally unavailable” in the admitted market. (See sidebar.)

Scott Hobson, assistant vice president of government relations, Big I Connecticut, urged passage of the measure to eliminate the three-declination requirement on brokers for surplus policy renewals. “In practice, this is a significant time and paperwork burden on agents, particularly on renewals where the agent has already once received the necessary declinations,” Hobson testified. Eliminating it when renewing a policy “will streamline the process for obtaining coverage and allow agents to focus on what matters most – helping their customers.”

Bradford J. Lachut, director of government affairs for the Professional Insurance Agents of Connecticut, maintained that obtaining written declinations is unnecessary today because the risks the process is intended to protect clients from have “greatly declined since the requirement went into effect as the surplus-lines market has greatly stabilized over several decades.”

Lachut said that while the step of first checking the admitted market keeps policies from being placed in the surplus lines market unnecessarily at the beginning, the “cumbersome process” has no additional purpose when it comes to renewals. “A producer can quickly confirm what coverage may be available through the online portals. Written declinations require steps outside the ordinary renewal procedures without adding additional protections for the client,” he said.

Record-High Direct Premiums Written for the U.S. Surplus Lines Segment in 2021

But the insurance department opposes the change as a weakening of consumer protection. It maintains the three declinations are needed on renewals as well as on new business as a protection due to the nature of the surplus market where policies are not approved by the regulator and policyholders are not protected by the state guaranty association if an insurer can’t pay its claims. Eliminating its applicability to renewal business will also “eliminate the potential for consumers to purchase coverage from an admitted insurer upon the expiration of an existing surplus lines policy,” the department maintained.

The department said it recognizes that the surplus lines market plays an important role in Connecticut as it allows many buyers to purchase coverages that would not otherwise be available. However, the agency argued, the risks to consumers of the surplus lines market still exist and the consumer protections should not be weakened.

The department said it welcomes a discussion of potential additions to the “white list” as a way to facilitate a more efficient policy production process.