Insurance Regulation in Connecticut
Total Page：16
File Type：pdf, Size：1020Kb
Insurance Regulation In Connecticut Qrnuurttirut ~rnrrnl 1\ssrmbly LEGISLATIVE PROGRAM REVIEW AND INVESTIGATIONS COMMITTEE JANUARY 1988 CONNECTICUT GENERAL ASSEMBLY LEGISLATIVE PROGRAM REVIEW AND INVESTIGATIONS COMMITTEE The Legislative Program Review and Investigations Committee is a joint, bipartisan, statutory committee of the Connecticut General Assembly. It was established in 1972 as the Legislative Program Review Committee to evaluate the efficiency and effectiveness of selected state programs and to recommend i mprovements where indicated. In 1975 the General Assembly expanded the committee's function to include investigations and changed its name to the Legislative Program Review and Investigations Committee. During the 1977 session, the committee's mandate was again expanded by the Executive Reorganization Act to in clude "Sunset" performance reviews of nearly 100 agencies, boards, and commissions, commencing on January 1, 1979. The committee is composed of 12 members . The president pro tempore of the senate, the senate mi nority leader, the speaker of the house, and the house minority leader each appoint three of those members . 1987-88 Committee Members Senate House John Atkin, Cochairperson Robert D. Bowden, Cochairperson Richard Blumenthal Teresalee Bertinuson Judith G. Freedman Richard Foley, Jr. Kevin Johnston Anthony Palermino Fred H. Lovegrove, Jr. Lee A. Samowitz Thomas Scott William L. Wollenberg Committee Staff Michael L. Nauer, Ph.D., Director George W. McKee, Chief Analyst L. Spencer Cain, Chief Analyst Carrie E . Vibert , Staff Attorney Catherine McNeill Conlin, Senior Analyst Jill E. Jensen, Senior Analyst Anne E. McAloon, Senior Analyst Brian R. Beisel, Program Analyst Maryellen Duffy, Program Analyst M. Renee La Mark, Program Analyst Warren Wood Pierce, II, Program Analyst William F. Salisbury, Program Analyst Lillian B. Crovo, Administrative Assistant Amelia A. Fitzpatrick, Administrative Assistant Project Staff L. Spencer Cain, Chief Analyst Catherine McNeill Conlin, Senior Analyst Maryellen Duffy, Program Analyst Legislative Office Building, 18 Trinity St., Hartford, CT 06106 (203)566-8480 INSURANCE REGULATION IN CONNECTICUT LEGISLATIVE PROGRAM REVIEW AND INVESTIGATIONS COMMITTEE JANUARY, 1988 INSURANCE REGULATION IN CONNECTICUT TABLE OF CONTENTS SUMMARY ......................................... i CHAPTER I. INTRODUCTION .................................... 1 CHAPTER II. REGULATION AND THE INSURANCE MARKETPLACE ........ 5 Section I. Background ................................ 7 Section II. Regulation and the Insurance Marketplace .. 13 CHAPTER III. THE CONNECTICUT INSURANCE DEPARTMENT AND ITS REGULATORY FUNCTIONS ........................ 25 Section I. Department Organization and Resources ..... 27 Resource Analysis ........................ 29 Comparison with Other States ............. 37 Section II. Financial Examination For Licensed Companies ..................... 41 Licensing Requirements and Procedures .... 41 Financial Examination For Licensed Companies ..................... 45 Performance Indicators ................... 48 Section III. Insurance Rate Making .................... 51 A Brief History of Rate Making and Statistical Bureaus ..................... 51 The Current Role of Rating and Statistical Bureaus ................................. 53 Rate Regulation .......................... 54 Rate Regulation in Connecticut ........... 56 Rate Review Administration ............... 59 Rate Increase Histories for Connecticut .. 61 Section IV. Policy Forms Review ...................... 63 Section V. The Department's Role in Consumer Protection .................... 71 Complaint and Inquiry Processing ......... 72 Analysis of Complaints and Inquiries ..... 74 Consumer Information ..................... 81 Market Conduct ........................... 82 Licensing of Brokers and Agents .......... 83 Disciplinary Sanctions ................... 84 Section VI. Information Systems ...................... 89 CHAPTER IV. FINDINGS AND RECOMMENDATIONS .................. 91 Section I. Introduction ............................. 93 Section II. Insurance Department Reorganization ...... 95 Division Functions ..................... 97 Section III. Information Systems ..................... 101 Section IV. Department Funding ...................... 105 Section v. Market Competition, Financial Solvency and Rate Regulation ................... 109 Market Competition ..................... 109 Barriers to Market Entry ............... 111 Licensing new companies ................ 111 Geographic restrictions ................ 113 Financial Solvency ..................... 113 Computerization ........................ 114 Quarterly and Annual Report ............ 115 Rate Regulation ........................ 116 Section VI. Policy Forms Review ..................... 121 Review procedures ...................... 121 Staffing .............................. 123 Section VII. Consumer Affairs ........................ 125 Complaint Processing .................. 125 Market Conduct Examinations ........... 127 Complaint Information ................. 127 Consumer Information .................. 128 Consumer Claims Settlement and Arbitration ..................... 130 APPENDICES ................................... 135 Bibliography ............................ 137 Glossary ................................ 141 Public Hearing/Interview List ........... 147 Agency Response ......................... 151 SUMMARY The Legislative Program Review and Investigations Committee conducted a study of insurance regulation in Connecticut and a performance audit of the Department of Insurance. The primary goal of the committee's recommendations, contained in this report, is to ensure that Connecticut consumers are adequately protected yet maintain a competitive insurance marketplace. The Connecticut Department of Insurance is currently organized into 7 divisions, and the department had been. pro posing to further expand the agency to 11 divisions. The program review committee found that the current span of control in the department is too broad, resulting in fragmented planning and coordination, and that there was lack of regulatory con sistency in overseeing insurance rates, policy forms, and the handling of complaints. Further, the department has no separate division respon sible for information systems and data processing. Consequent ly, the department lacks adequate data bases to perform its monitoring of insurance markets, rate review, complaint proces sing, or other regulatory functions efficiently. The committee examined market competition in Connecticut through several different measures and found that, for most products, a competitive market exists. However, the committee found that the department has not taken an active role in moni toring competition. The committee also found that barriers to market entry do exist in two areas. First, there is a two to three year wait for companies prior to being considered for licensure. Second, a company must first be licensed in an adjoining state before being eligible to do business in Connecticut. The committee found that the department's record at detect ing and protecting against financially insolvent companies is commendable. However, the program review committee concluded that these efforts could be enhanced by using a computerized system and by imposing a late filing fee for those companies deliquent with filing quarterly or annual reports. In the rate regulation area, the committee determined that no department-wide guidelines exist for reviewing rates, and that methodologies differ from division to division. Also, the department has not linked underwriting guidelines with rate information to assess the true impact of rate increases. Final ly, the program review committee considered the setting of rates by rating organizations in the commercial property/casualty area to be an anti-competitive practice. Similarly, the current policy forms review system lacks department-wide guidelines for ensuring that new policy provi- i sions are treated the same, fostering regulatory inconsistency. The committee also determined that the number of staff in the Life and Health Division was insufficient to meet its forms review workload. One of the major focuses of the study was on the depart ment's activities in protecting the consumer, especially in handling consumer complaints. Here, the committee found that no one division had responsibility for handling complaints, and the divisions performing that function each processed and recorded complaints differently. The committee found that the department is not currently compiling and using complaint data either to target market conduct reviews or to publish the results as an information source for consumers. The Legislative Program Review and Investigations Committee also determined that the department has made some efforts in disseminating information on insurance products and pricing to the consumer, but those measures need to be strengthened. One deficiency the committee found with the department's consumer protection role is the lack of statutory authority to arbitrate disputes between consumers and insurance companies. While the department does have authority to mediate, the program review committee determined, both from its review of complaints and from public hearing testimony, that often mediation cannot resolve claims settlement disputes. The department's funding mechanism was examined, and the committee determined that the removal of the cap on funding by