BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2735| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. CONTINUED AB 2735 Page 2 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 CONTINUED AB 2735 Page 3 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 CONTINUED AB 2735 Page 4 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 CONTINUED AB 2735 Page 5 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 **** END **** CONTINUED