BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2022| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: AB 2022 Author: Gaines (R) Amended: 5/11/10 in Assembly Vote: 21 SENATE BANKING, FINANCE, AND INS. COMMITTEE : 10-0, 6/30/10 AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Liu, Lowenthal, Padilla, Price, Runner NO VOTE RECORDED: Cox ASSEMBLY FLOOR : 72-0, 5/20/10 - See last page for vote SUBJECT : Property insurance: residential disclosure SOURCE : Department of Insurance DIGEST : This bill revises the disclosure notice required to be provided to homeowners by insurers so it is shorter, easier to read, and to make it easier for the homeowner to review the adequacy of his or her coverage in the event of a loss or a major catastrophe. ANALYSIS : Existing law 1. Requires insurers that sell residential property insurance to disclose to buyers the principal forms of insurance coverage for residential dwellings, and the form of dwelling coverage that the buyer has purchased. CONTINUED AB 2022 Page 2 This notice is named the California Residential Property Insurance Disclosure Statement (disclosure statement). 2. Specifies that the disclosure statement shall contain the following forms of dwelling coverage and defines the terms: A. Guaranteed replacement cost coverage with full building code upgrade. B. Guaranteed replacement cost coverage with limited or no building code upgrade. C. Limited replacement cost coverage with an additional percentage. D. Limited replacement cost coverage with no additional percentage. E. Actual cash value coverage. F. Building code upgrade. 3. Specifies that the disclosure statement does not explain the types of contents coverage (furniture, clothing, etc.) provided by the residential policy. 4. Requires the disclosure statement to be accompanied by a California Residential Property Insurance Bill of Rights (property bill of rights) that is printed in at least 10-point type. 5. Requires this property bill of rights to contain both items of advice (such as "keep accurate records of renovations and improvements to the structure of your home") and information that the consumer is entitled to receive (including a copy of the residential policy and an explanation of how the policy limits were established). This bill 1. Revises the current disclosure notice and the set of rights that residential property insurers must provide AB 2022 Page 3 to policyholders, as follows: A. Requires the California Residential Insurance Disclosure Notice to Consumers (disclosure notice) to be printed in no less than 10-point type. B. Requires the disclosure notice to identify the coverage purchased by the customer from among the following primary forms of residential dwelling insurance coverage, and defines the terms: (1) Actual cash value coverage (2) Replacement cost coverage (3) Extended replacement cost coverage (4) Guaranteed replacement cost coverage (5) Building code upgrade coverage 3. Requires the disclosure notice to identify several key facts in a new category titled "Information You Should Know About Residential Dwelling Insurance" and explains the terms: A. Avoid being underinsured B. The residential dwelling coverage limit C. Demand surge D. Changes to property E. Exclusions F. Contents (personal property) coverage disclosure G. Consumer assistance 4. Maintains the requirement the California Residential Property Insurance Bill of Rights be printed in at least 10-point type, restates various rights in the statement now provided to residential property insurance policyholders, adds a requirement that explanation for a policy cancellation or nonrenewal to be in writing, and adds the right to an offer of coverage and premium quote for earthquake coverage if the insured is eligible and removes material deemed not needed in light of experience with the existing notice. Background The California Residential Property Insurance Disclosure AB 2022 Page 4 legislation, which was adopted in 1992, was the response to the insurance claims issues arising from the Oakland Hills Fire of 1991. There were approximately 3,000 houses and apartments that were completely destroyed by that fire and many of the homeowners were significantly underinsured. According to the author, the main purpose of this disclosure legislation was to alert policyholders to the various forms of coverage available so they would know the importance of seeking Guaranteed Replacement Coverage and to become aware of the their current coverage and options. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 7/28/10) Department of Insurance (source) United Policyholders ARGUMENTS IN SUPPORT : Since the enactment of the disclosure legislation in 1992, California has had the misfortune to suffer several major disasters, including major wildfires in Southern California. The author's office and the Department of Insurance, the sponsor state that the disclosure notice, even with amendments over the years, has become outdated in its content. Guaranteed Replacement Cost coverage is offered by only four or five insurers in the entire homeowners' insurance market. Further, due to the length of the disclosure notice, its cumbersome charts, and the technical descriptions of coverage and responsibilities, the disclosure notice fails to provide the readability necessary to effectively convey the important information. According to the author's office and the Department of Insurance, the revised disclosure notice is easier to read, updates key terms in homeowners policies, emphasizes the avoidance of underinsurance, and describes the effect of a demand surge on construction costs. This information will help homeowners in reviewing the adequacy of their insurance coverage in the event of a catastrophe such as a wildfire. AB 2022 Page 5 ASSEMBLY FLOOR : AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield, Bradford, Brownley, Buchanan, Caballero, Charles Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De Leon, DeVore, Emmerson, Eng, Feuer, Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore, Hagman, Hall, Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nestande, Niello, Nielsen, Norby, V. Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva, Skinner, Smyth, Solorio, Audra Strickland, Swanson, Torlakson, Torres, Torrico, Tran, Yamada NO VOTE RECORDED: De La Torre, Evans, Fletcher, Harkey, Nava, Villines, John A. Perez, Vacancy JJA:do 7/28/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****