Connecticut lawmakers have passed a measure to shift the cost of auto insurance arbitration hearings between claimants and insurers over damage claims to the insurance industry.
Currently the department of insurance absorbs the average $3,075 cost to hold each of these arbitration hearings. Insurance Commissioner Andrew Mais thinks shifting some of that expense onto insurers might reduce the need for arbitration.
The arbitration hearings are held in cases where mediation has failed to settle differences over automobile physical damage and automobile property damage liability claims in which liability and coverage are not in dispute.
The new legislation would mandate that an insurer reimburse the state for the $3,075 cost if the claimant wins, unless the claimant rejected an insurance company’s pre-arbitration offer that was of equal or greater value than the arbitration award.
According to the legislative analysis of the bill, the department holds about 29 arbitration hearings a year, with an average of 15 of them deciding in favor of the claimant. The measure could result in reimbursement to the state of about $35,000 in fiscal year 2026 and less than $50,000 annually starting in fiscal year 2027.
The state’s analysis suggests that the requirement might actually reduce the number of hearings by motivating insurers to settle in order to avoid the arbitration fee — which is one reason Commissioner Mais asked lawmakers to support the bill. Mais maintains that the reimbursement proposal will encourage “pre-arbitration resolution of automobile physical damage claims, which will result in a more time-effective process for both consumers and insurers.”
The current insurance department annual budget is more than $35,000,000. Thus, even insurers acknowledged, the amount associated with these hearings is minimal. However insurance company groups questioned the need for the measure, noting that insurers already pay for the operations of the state’s insurance department through assessments and thus these costs should be accounted for in the department’s budget.
“We are unclear as to whether any other state levies such separate charges upon carriers to pay for similar arbitration hearings,” representatives for the Insurance Association of Connecticut, the American Property and Casualty Insurance Association, and the National Association of Mutual Insurance Companies told lawmakers.
Rather than separate charges to fund these hearings, the insurers offered to work with the insurance department to ensure that it is properly funded so that these costs are covered in its budget,
The bill has been sent to Gov. Ned Lamont, who has 15 days from June 4 to veto or sign it or the bill automatically goes into effect on October 1, 2025.
According to the insurance department, the current fee structure for arbitrations includes a non-refundable fee of $925 plus $1,350 for the arbitrator for a subtotal of $2,275 that must be paid when the matter is referred to the American Arbitration Association (AAA). If the case settles or is withdrawn before an arbitrator is appointed, AAA returns the $1,350 arbitrator portion of the fee. Thus the net cost to the department is $925. However, if the case goes to arbitration, an additional final administrative fee of $800 is due to AAA, bringing the total to $3,075, which is $2,275 + $800.
Topics
Carriers
Claims
Auto
Connecticut
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