BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AJR 6|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AJR 6
Author: Cooley (D)
Introduced:2/24/15
Vote: 21
SENATE INSURANCE COMMITTEE: 9-0, 6/10/15
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Mitchell, Wieckowski
ASSEMBLY FLOOR: 79-0, 4/13/15 - See last page for vote
SUBJECT: California Earthquake Authority: postearthquake
financing
SOURCE: Author
DIGEST: This bill recognizes the need for federal legislation
that establishes guarantees of post-earthquake financing for
pre-qualified, actuarially sound state earthquake programs,
including the California Earthquake Authority (CEA), and urges
the President of the United States and the Congress of the
United States to enact such legislation.
ANALYSIS:
Existing law:
1) Provides that no homeowners' insurance policy may be offered or
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sold in California unless the homeowner is offered earthquake
coverage, either as part of the homeowners' policy, or as a
separate policy.
2) Establishes the CEA, a privately financed, publicly managed
entity to sell only earthquake insurance.
3) Allows the CEA to purchase reinsurance and issue bonds to
expand its capacity to write earthquake insurance coverage.
4) Requires insurers participating in the CEA to provide limited
additional funding to pay claims in the event all available
capital and reinsurance is exhausted, as specified.
5) Authorizes the State Treasurer, in the event the CEA has
exhausted its capital resources available to pay claims, to
issue up to $1 billion in revenue bonds or other debt financing
that would be repaid through a post-event surcharge imposed on
CEA policyholders up to an additional 20% of their annual
premium.
This bill:
1) Makes various legislative findings regarding the peril
posed by earthquakes in California, and the need for smart
policy choices to make earthquake insurance work better for
its residents.
2) Recognizes the need for federal legislation that
establishes guarantees of post-earthquake financing for
pre-qualified, actuarially sound state earthquake programs,
including the CEA, and urges the President of the United
States and the Congress of the United States to enact such
legislation.
Background
Insurance is the primary mechanism to spread losses and recover
from catastrophes such as earthquakes. Nonetheless, according to
data from the California Department of Insurance, fewer than 11%
of California homeowners and only about 8.3% of businesses have
earthquake insurance. Earthquake peril is not covered by
homeowners' or business insurance policies, and must be
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purchased separately. One of the reasons for the low rates of
earthquake insurance is its high cost.
Contributing to that high cost is the need to purchase
reinsurance. In 2012, the CEA spent 39% of premiums, totaling
$222 million, on reinsurance. According to the CEA, from
1996-2014, the CEA has paid $3.7 billion for reinsurance, but
has collected only $250,000 on claims under those policies.
Post-event bonding authority would lower the cost of earthquake
insurance for homeowners who buy coverage from non-profit, state
earthquake insurance programs such as the CEA, and could also
direct funding to effective seismic-mitigation measures. It
would allow the CEA to sell post-event bonds in the private
capital market, reducing the need to purchase reinsurance
pre-event and result in rate reductions and lower deductibles.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/11/15)
None received
OPPOSITION: (Verified6/11/15)
None received
ASSEMBLY FLOOR: 79-0, 4/13/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin,
Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
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Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Harper
Prepared by:Erin Ryan / INS. / (916) 651-4110
6/12/15 11:23:50
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