State Regulators Concerned Insurance Carriers Are Quietly Exiting Lines of ‎Business

It has been heavily covered in national news media that property & casualty insurers have been withdrawing from certain business lines, in particular homeowners, in states such as California, Florida, Louisiana, and Texas. Other states around the country are also experiencing heightened numbers of insurance carriers exiting some markets. In response states have been addressing different aspects of insurance carrier withdrawal in various ways. For instance, last fall, Connecticut[1] issued a Bulletin which requires property & casualty insurers that discontinue or substantially reduce “writings in a line or subline” to provide prior notice to the state insurance regulator. Earlier this year, Iowa[2] extended the consumer notice period for renewals and non-renewals of personal lines policies from 30 days to 60 days. This spring, the Delaware Department of Insurance (the “Department”) raised the issue of “carriers quietly exiting lines of business” while the New Mexico Office of Superintendent of Insurance (the “OSI”) proposed a regulation which would impose on property & casualty insurers prior notice to OSI when discontinuing products in the state.

Delaware

In May, the Department issued Bulletin No. 40[3] requesting that insurance carriers submit to the Department at least 90 days’ notice when withdrawing a line or subline of business from Delaware. The Department noted “potential disruptions in the insurance marketplace caused by carrier withdrawals and the risk of carriers quietly exiting lines of business.” (emphasis added) In light of these concerns, the Department requests that carriers notify the Department if they “intend to terminate any or all of a business line or product that would lead to withdrawal from the State’s market.” The Department further clarified that this notice request “covers situations where insurance carriers cease employing agency-facing applications and other technological tools,[4] processes (e.g., underwriter referrals), communications to producers, or any other changes in business practices that effectively result in the discontinuation or reduction of a line of business or product” such as “transition[ing] all business from its company to an affiliated or non-affiliated insurer” and discontinuing “an entire book of business at the end of the policy term” or failing to “renew to a block of a business.”

The Department requests that insurance carriers submit a written letter of intent “at least 90 days before the insurance carrier intends to issue notices regarding withdrawal activity.” Such letters of intent should include the following:

List of each line of business and/or products to be withdrawn;
Reason for withdrawal;
Effective date of withdrawal;
Total Annual Premium loss;
Number of impacted Delaware insureds, including county data; and
Is the withdrawal specific to Delaware or will other jurisdictions be impacted?

Letters of intent should be submitted via the System for Electronic Rate & Form Filings (“SERFF”) and via e-mail to [email protected].

New Mexico

Last month, the OSI hosted a public hearing regarding a proposed emergency rule (13.8.7)[5] which would add alongside the existing consumer notice requirement a regulator notice requirement at least 30 days “prior to the effective date of the discontinuation date of the first insurance product.” The New Mexico proposal varied from the Delaware bulletin in that it focused on insurance products rather than business lines or sublines and that it required very granular information regarding specific policyholders. At the public hearing, OSI staff acquiesced to industry confidentiality concerns regarding policyholder identities, acknowledging that for regulatory notice purposes aggregate data suffices. Industry raised additional questions regarding affiliate transfers, comparable replacement products, and materiality of changes which were addressed in a follow-up draft which confirmed that OSI sought notice of affiliate transfers and material changes to coverage, while replacements are less clear.[6] Earlier this month the hearing officer published his recommendation that the Superintendent of Insurance issue a final order for publication in the state register adopting the final form regulation which would take effect no later than July 30, 2024, and require insurance carriers to provide to the property & casualty bureau chief notice of the impacted products, effective date, and number of impacted insureds.[7]

Conclusion

States around the country are responding to a real crisis in property and casualty coverage at least partly due to substantial increases in catastrophic weather events such as convective storms, flooding, wildfires, and increasingly hail. As states continue to address their concerns on an ad hoc state-by-state basis the compliance environment for insurance carriers becomes increasingly complicated. As insurance companies reevaluate their product mix across states, especially as to personal lines property & casualty policies, it is incumbent upon them to consider shifting notice requirements and whether a state may view their actions as a form of quietly exiting a line or subline of business.

Locke Lord will continue to monitor developments by state agencies and state legislatures. If you have any ‎‎questions, please reach out to the author or your Locke Lord partner.‎

See also previous Locke Lord commentary on related activity last fall:‎ Connecticut Expands Notice Requirements for Withdrawing From a Line of Business.

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* With appreciation for the contributions of our summer associate Matt Cossu of the New York Law School Class of 2025.

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[1] Bulletin PC 34-23, Notice to Commissioner of Intent to Discontinue or Substantially Reduce a Line or Subline of Business (September 19, 2023).

[2] H.F. 2265 signed by Governor Kim Reynolds on April 10, 2024.

[3] Bulletin No. 40, Request for Letter of Intent when Withdrawing a Line of Business/Product from the Market in Delaware (May 3, 2024).

[4] The emphasis on agency-facing apps echoes Bulletin PC-34-23 issued last September by the Connecticut Department of Insurance.

[5] See, OSI eDocket Proposed Amended 13.8.7 NMAC, Notification Requirement of Discontinuation of Insurance Product (April 9, 2024).

[6] See, OSI eDocket Staff’s Response to Oral and Written Comments (May 21, 2024).

[7] See, OSI eDocket Hearing Officer’s Recommended Decision (June 6, 2024).