BILL ANALYSIS Ó AB 447 Page 1 Date of Hearing: May 6, 2015 ASSEMBLY COMMITTEE ON INSURANCE Tom Daly, Chair AB 447 (Maienschein) - As Amended April 29, 2015 SUBJECT: Property insurance: discrimination SUMMARY: Prohibits discrimination in the application for, issuance of, or pricing of insurance policies covering real property designed for human habitation. Specifically, this bill: 1)Prohibits an insurer from using any of the following characteristics as the basis for different treatment of otherwise comparable risks, for purposes of whether to accept an application for, issue a policy of, or cancel a policy of, insurance on property designed for human habitation: a) The method that the property is financed; b) The level or source of income of the individual or group of people residing or intending to reside upon the property; or c) The receipt of assistance from either the federal or state government, or from a local public entity, as AB 447 Page 2 defined, including "Section 8" vouchers, by an individual or group of people residing or intending to reside upon the property. 2)Prohibits an insurer from using any of these characteristics as a condition or risk for which a higher rate, premium or charge may be imposed by the insurer for that insurance. 3)Prohibits an application for this insurance, or a report furnished by an insurer for use in determining insurability, to have any identification, or requirement to provide the identification, of these characteristics. EXISTING LAW: 1)Prohibits an insurer from using sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, or sexual orientation under conditions less favorable to the insured than in other comparable cases, for purposes of accepting applications for, issuing policies of, canceling policies of property or commercial insurance. 2)Prohibits using any of these characteristics as a condition or risk to justify charging a policyholder a higher rate, premium, or charge for the insurance. FISCAL EFFECT: Undetermined COMMENTS: AB 447 Page 3 1)Purpose. According to the author, "[s]elect insurance providers are denying renewals of policies on a landlord having tenants who are receiving Section 8 vouchers. This practice is discriminatory . . . and should be remedied." The bill, as amended, prohibits using Section 8 status, and related characteristics associated with low-income housing, as a basis to decide whether to accept an application for insurance, issue or renew the policy, or price the policy. 2)Background. Unlike the highly regulated private passenger automobile market, there are relatively few limitations on insurer underwriting and pricing in the property insurance market. The traditional protected classes listed in the Unruh Civil Rights Act, for example, are prohibited bases of property insurance discrimination, but few other specific rules exist. Insurers use a myriad of characteristics associated with a property to evaluate the level of risk associated with insuring the property, including location, structural condition, age, design, height, management, ownership, maintenance, hazards to tenants and guests on the property, occupancy rate, rent, tenants and tenant mix, presence of safety devices such as fire and smoke alarms, lighting, sports facilities or swimming pools, among other risk factors. As an element of "tenant mix" some insurers look at the presence of subsidized tenants as one of the factors that contribute to an evaluation of the property's underwriting risk. 3)"Section 8". Under federal law, qualified low-income renters can obtain a voucher to assist in paying rent. For the landlord, a Section 8 renter provides a strong assurance that rent will be paid in a timely manner. There are state and local government programs that proponents point to as similar in purpose, and these programs have been included in the bill as well. AB 447 Page 4 4)Subsidized financing. There are programs that provide subsidized financing for multi-unit residential property, conditioned on the owner/borrower renting the units to qualified tenants as below-market rent. Because these programs serve the same purpose as Section 8 vouchers, and the landlord-tenant relationship is similar to the Section 8 relationship, the bill includes this characteristic of a residential property in the list of characteristics that insurers cannot use as a basis to distinguish among otherwise comparable risks. 5)Fairness vs. underwriting flexibility. The fundamental question posed by the bill is whether it is fair to treat a property owner/landlord differently from a comparably situated property owner/landlord because the former chooses to rent to tenants who have availed themselves of legitimate government benefits. Proponents point to problems associated with rising rents in California's urban areas, and have lauded the landlords who have chosen to make the efforts to address some of the state's most vexing housing issues. Insurers respond that there are many companies in the property insurance market, and that ample options are available. Some companies specialize in small multi-unit buildings, some specialize in large complexes, others specialize in low-income properties, and each has expertise in the various types of properties it has chosen to insure. Restrictions on these companies' ability to evaluate the type of property that comes within its respective underwriting goals can eliminate flexibility, skew underwriting, and result in market dislocations. REGISTERED SUPPORT / OPPOSITION: Support AB 447 Page 5 Housing California (Co-sponsor) California Coalition for Rural Housing (Co-sponsor) Western Center on Law and Poverty (Co-sponsor) California Apartment Association Community Housing Works (CHW) Corporation for Supportive Housing (CSH) Downtown Women's Center (DWC) First Place for Youth Housing Leadership Council of San Mateo County LINC Housing Mutual Housing California Project Sentinel Northern Circle Indian Housing Authority PATH (People Assisting the Homeless) AB 447 Page 6 PATH Ventures Rural Community Assistance Corporation (RCAC) Sacramento Homeless Organizing Committee SKID ROW HOUSING TRUST Opposition ACIC American Insurance Association National Association of Mutual Insurance Companies Pacific Association of Domestic Insurance Companies Personal Insurance Federation of California Analysis Prepared by:Mark Rakich / INS. / (916) 319-2086 AB 447 Page 7