Connecticut lawmakers have passed legislation that will transfer the financial responsibility for arbitration hearings between claimants and insurance companies over automobile damage claims to the insurers themselves.

Currently, the state’s Department of Insurance covers the average $3,075 cost for each arbitration hearing. Insurance Commissioner Andrew Mais believes that by shifting some of this financial burden onto the insurers, it may decrease the need for arbitration proceedings.

Arbitration hearings are held when mediation fails to resolve disputes related to automobile physical damage and liability claims, where liability and coverage are not in question.

Under the new legislation, insurers would be required to reimburse the state for the $3,075 cost of arbitration if the claimant prevails—unless the claimant turned down a pre-arbitration offer from the insurer that was equal to or greater than the eventual arbitration award.

A legislative analysis of the bill states that the Department of Insurance conducts around 29 arbitration hearings each year, with an average of 15 of those cases resulting in a favorable outcome for the claimant. The new measure could lead to a reimbursement of approximately $35,000 in fiscal year 2026, and less than $50,000 annually starting in fiscal year 2027.

The state’s analysis also suggests that the policy might actually reduce the number of arbitration hearings by encouraging insurers to settle disputes beforehand to avoid incurring the arbitration costs. This, according to Commissioner Mais, is a key benefit of the proposal. Mais believes the change will promote “pre-arbitration resolution of automobile damage claims, resulting in a more efficient process for both consumers and insurers.”

The state’s annual insurance department budget exceeds $35 million, so insurers recognize that the cost associated with these hearings is relatively small. However, insurance industry groups have raised concerns about the necessity of the new measure, pointing out that insurers already fund the state’s insurance department through assessments and that these costs should be included in the department’s overall budget.

“We are unclear whether other states impose similar charges on carriers to cover arbitration hearing costs,” representatives from the Insurance Association of Connecticut, the American Property and Casualty Insurance Association, and the National Association of Mutual Insurance Companies told lawmakers.

Instead of a separate charge to fund the hearings, insurers have offered to collaborate with the Department of Insurance to ensure that the department is adequately funded to cover such costs within its budget.

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

According to the Department of Insurance, the current arbitration fee structure includes a non-refundable charge of $925, plus a $1,350 fee for the arbitrator, bringing the total to $2,275 when the case is referred to the American Arbitration Association (AAA). If the case settles or is withdrawn before an arbitrator is appointed, the $1,350 arbitrator fee is refunded. Therefore, the net cost to the department is $925. However, if the case proceeds to arbitration, an additional $800 final administrative fee is due to AAA, increasing the total cost to $3,075.