BILL ANALYSIS
AB 43
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 43 (Blakeslee) - As Amended: April 13, 2009
SUBJECT : California Earthquake Authority
SUMMARY : Authorizes the California Earthquake Authority (CEA)
to employ a chief mitigation officer and removes the restriction
that the CEA hire no more than 25 civil service employees.
Specifically, this bill :
1)Authorizes the CEA to contract for the services of a chief
mitigation officer, who would not work in a civil service
position.
2)Requires the chief mitigation officer for the CEA to establish
programs to mitigate against seismic risk by developing
corporate outreach programs, providing loans and grants,
forming partnerships with local governments and private
entities, or utilizing other programs deemed necessary by the
chief mitigation officer.
3)Eliminates the provision of law that specifies that the CEA
may employ no more than 25 civil service employees.
EXISTING LAW :
1)Establishes the CEA with the authority to sell policies of
basic residential earthquake insurance. The CEA is a publicly
managed, largely privately funded entity. Companies that sell
residential insurance can choose to offer their own privately
funded earthquake insurance product or they can become a
participating insurance company of the CEA. Only
participating insurance companies can offer CEA
earthquake-insurance policies.
2)Authorizes the CEA to contract for the services of a chief
executive officer, a chief financial officer, and an
operations manager, as well as to contract for the services of
reinsurance intermediaries, financial market underwriters,
modeling firms, a computer firm, an actuary, an insurance
claims consultant, counsel, and private money managers. These
contracts are not subject to civil service provisions of law.
AB 43
Page 2
3)Specifies that the other employees of the CEA shall be subject
to civil service provisions. The total number of CEA
employees subject to civil service provisions shall not exceed
25.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Need for bill. According to the author, the Working Group on
California Earthquake Probabilities, a multi-disciplinary
group of scientists and engineers from the U.S. Geological
Survey and the Southern California Earthquake Center,
forecasts a 99% chance of a magnitude 6.7 or greater
earthquake striking California within the next 30 years. It
is estimated that if the earthquake's epicenter is in a highly
populated area such as Los Angeles, the damage could be in the
billions in residential and business losses. The author also
states that in San Francisco, 80% of the weakest wood-framed
buildings are expected to collapse or become damaged beyond
repair in a large earthquake.
2)Earthquake mitigation and chief mitigation officer. The CEA
maintains an existing fund, known as the Loss Mitigation Fund,
to create a statewide residential retrofit program to benefit
the public as well as CEA policyholders. This fund has
approximately $12 million. However, previous programs started
by the CEA to retrofit residential property have not been
successful. An early effort resulted in a few retrofits and
one loan. Another effort, the State Assistance for Earthquake
Retrofitting (SAFER) Program, established in several San
Francisco Bay Area counties, received 17,000 phone inquiries,
and performed 4,772 assessments, but resulted in only 31
consumers undertaking retrofit activities.
The author states that this bill will make it possible for the
CEA to employ a chief mitigation officer and establish a
successful retrofit program.
3)Removal of employment cap. The bill removes the employment
cap of 25 civil service employees in the CEA. The bill leaves
intact the existing cap on the operating expenses of the CEA:
at 3% of the premium income received by the CEA. Thus, while
the staffing level may increase in future years if the
AB 43
Page 3
Legislature and Governor approve new positions, AB 43 will not
increase operating costs above the existing authorized level.
4)Need for incentives to homeowners to making seismic
improvements. With the very high probability of a major
earthquake striking California within the foreseeable future,
there is a strong argument that the state needs to do more to
provide incentives to homeowners to make the investments
necessary to reduce the threats to lives and property. Since
the state is in the middle of a sharp economic recession, it
is likely that without a public partnership of new funds for
homeowners that many people will not correct the hazards.
This bill contains several of the key elements recognized to
help change behavior to reduce structural hazards including
information, and grants and loans to retrofit structures. At
the same time, there are several key points that should
probably be tightened in the bill to increase its chances of
success: see the points in #5 below.
5)Responsibilities of the chief mitigation officer can be made
clearer. The bill places responsibility with the chief
mitigation officer to reduce seismic risk by developing
corporate outreach programs, providing loans and grants,
forming partnerships with local governments and private
entities, or utilizing other programs deemed necessary by that
officer. Among the key questions are:
a) Should the outreach programs be restricted to
corporations or should the mitigation officer also be
authorized to conduct outreach to the general public,
homeowners, and landlords with small holdings?
b) Should the partnerships be limited only to local
governments or can they include partnerships with state and
federal governments as well?
c) Does authorizing the mitigation officer to "utilize
other programs deemed necessary" provide an overly broad
scope of authority? There is no specificity on what can be
done and no standard to be met.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 43
Page 4
None received.
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086