BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 2022|
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                                    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.   
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             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  







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             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  







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          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.   







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           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

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