Connecticut legislators have approved a bill that would transfer the financial burden of auto insurance arbitration hearings — which resolve disputes between claimants and insurers over damage claims — onto the insurance companies themselves.

At present, the state’s Department of Insurance covers the average $3,075 expense for each arbitration hearing. Insurance Commissioner Andrew Mais believes that making insurers responsible for part of these costs could discourage unnecessary arbitration.

These arbitration hearings occur when mediation fails to resolve disagreements regarding automobile physical damage and property damage liability claims, where liability and coverage issues are not contested.

Under the new law, insurers would be required to reimburse the state $3,075 for each arbitration hearing where the claimant prevails, unless the claimant had declined a pre-arbitration offer from the insurer that was equal to or greater than the arbitration award.

According to the bill’s legislative analysis, the department conducts about 29 arbitration hearings annually, with roughly 15 resulting in decisions favorable to the claimant. This change could generate reimbursements of approximately $35,000 in fiscal year 2026 and just under $50,000 each year thereafter starting in fiscal year 2027.

State analysts believe this reimbursement rule may reduce the total number of hearings by incentivizing insurers to settle disputes before arbitration to avoid paying the fee. Commissioner Mais supports the bill for this reason, stating it will promote “pre-arbitration resolution of automobile physical damage claims, leading to a more efficient process for both consumers and insurers.”

While the Department of Insurance’s current annual budget exceeds $35 million, and the cost associated with these arbitration hearings is relatively small, insurance industry groups have raised concerns about the measure. They argue that insurers already fund the department’s operations through assessments, so arbitration costs should be managed within the department’s budget rather than billed separately.

Representatives from the Insurance Association of Connecticut, the American Property and Casualty Insurance Association, and the National Association of Mutual Insurance Companies expressed uncertainty to lawmakers about whether any other state imposes separate fees on insurers for similar arbitration hearings.

Instead of charging insurers separately, these groups suggested collaborating with the insurance department to ensure it receives adequate funding through its existing budget.

The bill is now with Governor Ned Lamont, who has 15 days from June 4 to either sign or veto it. If no action is taken, the bill will automatically become law on October 1, 2025.

According to the insurance department, the current arbitration fee structure includes a non-refundable $925 fee plus a $1,350 arbitrator fee, totaling $2,275 due when a case is referred to the American Arbitration Association (AAA). If the case settles or is withdrawn before an arbitrator is assigned, AAA refunds the $1,350 arbitrator fee, leaving a $925 net cost to the department. However, if the case proceeds to arbitration, an additional $800 administrative fee is charged, raising the total cost to $3,075 ($2,275 plus $800).