The state legislature's Insurance & Real Estate Committee recently proposed a bill that would require anyone who insures a home to purchase a policy with a costly and nationally unprecedented coverage mandate.
House Bill 5522 (An Act Concerning Homeowners Insurance Policies and Coverage for the Peril of Collapse) is intended to address the "crumbling foundations" problem reportedly affecting a limited number of homes and buildings in northeastern Connecticut. Although it is certainly understandable that some legislators wish to move quickly to address this problem, HB 5522 would likely do harm to consumers across the state while providing no relief to the affected homeowners.
The controversial bill narrowly passed out of committee by a vote of 10-9. Many of the legislators who voted against the bill expressed concern about the detrimental impact it would have on the market for homeowners insurance for all Connecticut consumers. The Connecticut Department of Insurance, the state agency tasked with protecting consumers of insurance, warned that the bill would threaten both the affordability and the availability of homeowners insurance in Connecticut.
The legislature should reject this harmful concept.
Based on news accounts, the foundations of affected homes are crumbling or deteriorating prematurely. The Department of Consumer Protection has hired a civil engineer to determine the cause of the deterioration and how many homeowners are impacted.
Any public policy reaction should be placed on hold until the full cause and scope of the problem can be determined. But no matter what, the bill passed by the committee is not the right solution.
HB 5522 would require every homeowners insurance policy issued in Connecticut to pay for almost any type of damage that could occur to a home. It would even require insurance policies to cover "defective materials or construction methods." In essence, it would convert homeowners insurance into a home warranty.
Under HB 5522, consumers of homeowners insurance across the state would be forced to purchase policies with this expensive new mandate — assuming such policies were even obtainable. According to the Department of Insurance, the bill could impact not just the affordability but also the "future availability" of homeowners insurance in Connecticut.
The proponents of HB 5522 falsely claim that the bill would provide relief to affected homeowners. But the new mandate is prospective, and the legislature cannot retroactively change existing contracts.
Perversely, HB 5522 could be particularly harmful to the very region affected by the crumbling foundations problem. In testimony submitted to the Insurance & Real Estate Committee, the Department of Insurance explained that if the bill were to become law, "carriers would need to increase rates in the regions affected by the faulty foundations by reflecting the claims costs of those losses in future pricing. As a result, all homeowners in the territories impacted by this issue — regardless of the status of their foundations — could face significantly higher premiums in the years to come."
Hopefully, the state's investigation will yield answers to this very serious problem. But affected homeowners deserve better than the false hope offered by HB 5522, and all consumers deserve the freedom to purchase insurance without costly government mandates.
Legislators should reject such a harmful concept.
Eric J. George is the president of the Insurance Association of Connecticut, the Connecticut trade association representing homeowners insurance carriers in the state.