BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 2735
          Author:   Assembly Insurance Committee
          Amended:  8/11/14 in Senate
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  10-0, 6/25/14
          AYES:  Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,  
            Nielsen, Roth, Torres, Vidak
          NO VOTE RECORDED:  Gaines

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  75-0, 4/24/14 (Consent) - See last page for  
            vote


           SUBJECT  :    Earthquake insurance

           SOURCE  :     Author


           DIGEST  :    This bill provides that if an insurer issues or  
          causes to be issued a policy with earthquake coverages other  
          than the specified coverages, but in accordance with an approved  
          rate application, no further or other offer of earthquake  
          coverage meeting the coverage and deductible requirements and no  
          further or other notice of noncoverage is required by the  
          insurer if a renewal of that policy is offered, and a written  
          notice is provided with that renewal regarding additional  
          earthquake coverage that is available.  This bill also requires  
          the form of that written notice to be approved by the Insurance  
          Commissioner.
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           Senate Floor Amendments  of 8/11/14 add double-jointing language  
          to prevent chaptering out issues with AB 2064 (Cooley).

           ANALYSIS  :    

          Existing law

          1. Provides that no homeowners' insurance policy may be offered  
             or sold in California unless the homeowner is offered  
             earthquake coverage, either as part of the homeowners'  
             policy, or as a separate policy.

          2. Requires the offer of earthquake insurance to be made prior  
             to, concurrent with, or within 60 days following the issuance  
             or renewal of a homeowners' insurance policy.

          3. Specifies language that must be included in the offer of  
             earthquake coverage in at least 10-point boldface type,  
             beginning with:

             "YOUR POLICY DOES NOT PROVIDE COVERAGE AGAINST THE PERIL OF  
             EARTHQUAKE. 

             CALIFORNIA LAW REQUIRES THAT EARTHQUAKE COVERAGE BE OFFERED  
             TO YOU AT YOUR OPTION. 

             WARNING: THESE COVERAGES MAY DIFFER SUBSTANTIALLY FROM AND  
             PROVIDE LESS PROTECTION THAN THE COVERAGE PROVIDED BY YOUR  
             HOMEOWNERS' INSURANCE POLICY?."

          4. Establishes minimum requirements for the offer of earthquake  
             insurance, also known as the "mini-policy," that fulfills the  
             mandatory offer requirement.

          5. Provides that if the offer of earthquake insurance provided  
             is not accepted, the homeowners' insurer must offer  
             earthquake insurance to homeowners' policyholders at least  
             every other year.

          6. Provides that when the homeowner has not purchased earthquake  
             coverage pursuant to the mandated offer, the insurer must  
             notify the homeowner that the homeowners' policy does not  
             include earthquake coverage, and provide a specific notice of  

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             non-coverage on at least an every other year basis prior to,  
             or concurrent with, renewal of the homeowners' insurance  
             policy.

          7. Allows the Insurance Commissioner to approve earthquake  
             policies providing coverage other than the minimum statutory  
             offer requirements, as long as at least one coverage offered  
             meets the minimum criteria.

          8. Establishes the California Earthquake Authority (CEA), a  
             privately financed, publicly managed entity to sell only  
             earthquake insurance.

          This bill

          1. Provides that if an insurer issues or causes to be issued a  
             policy with earthquake coverages other than the specified  
             coverages, but in accordance with an approved rate  
             application, no further or other offer of earthquake coverage  
             meeting the coverage and deductible requirements and no  
             further or other notice of noncoverage is required by the  
             insurer if a renewal of that policy is offered, and a written  
             notice is provided with that renewal regarding additional  
             earthquake coverage that is available.

          2. Requires written notice of specified coverages to be filed  
             with the Insurance Commissioner at least 30 days prior to  
             use, and specify that it may not be used if disapproved by  
             the Insurance Commissioner for being misleading or  
             incomplete.

          3. Contains double-jointing language to prevent chaptering out  
             issues with AB 2064 (Cooley).

           Background
           
          The Insurance Code specifies the minimum earthquake coverage  
          that must be offered to homeowners when they purchase or renew a  
          homeowners' insurance policy.  Current statute does not mandate  
          that the homeowner purchase that coverage, or any earthquake  
          insurance.  Statute gives the Insurance Commissioner's authority  
          to approve rate applications that are different from the  
          standard minimum earthquake policy, as long as at least one of  
          the coverages offered meets the mandatory minimum.  Statute also  

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          requires an insurer to send a specific notice every other year  
          to a homeowner who has not purchased the mandatory offer policy,  
          reminding them that they are not covered for earthquake peril.

          In 2012, the CEA began offering a new homeowners' "Choice"  
          product that allows homeowners more flexibility in how to  
          structure their earthquake insurance policy. With the Choice  
          product, homeowners can choose from a menu of coverage and  
          deductibles, giving them greater control over their premium.   
          For example, a homeowner can decide not to purchase contents  
          coverage, can choose from varying levels of loss of use  
          coverage, and can choose a separate deductible for each  
          coverage.  Using this product, the homeowner may end up with  
          less, more, or simply different coverage than the standard  
          mandatory offer policy.
           
          Under current statute, an insurer is required to send a notice  
          every other year at the time of renewal of the homeowners'  
          insurance policy that the homeowner lacks earthquake coverage,  
          even if the homeowner has purchased earthquake coverage, such as  
          the CEA Choice policy, that is different than the mandatory  
          minimum policy.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/4/14)

          Association of California Insurance Companies
          Personal Insurance Federation of California

           ARGUMENTS IN SUPPORT  :    According to the Personal Insurance  
          Federation of California, this bill provides simple  
          clarification that if a consumer has purchased the CEA's Choice  
          product, they will not receive an additional, confusing and  
          erroneous offer stating that they do not have earthquake  
          insurance.  The intent of creating the Choice product was to  
          give consumers additional options, and without this technical  
          fix, consumers are at risk of confusion.


           ASSEMBLY FLOOR  :  75-0, 4/24/14
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  

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                                                                    AB 2735
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            Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,  
            Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,  
            Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,  
            Gorell, Grove, Hagman, Hall, Roger Hernández, Holden, Jones,  
            Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,  
            Medina, Melendez, Mullin, Muratsuchi, Nestande, Olsen, Pan,  
            Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,  
            Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.  
            Pérez
          NO VOTE RECORDED:  Gray, Harkey, Mansoor, Nazarian, Vacancy


          AL:d  8/11/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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