BILL ANALYSIS Ó
AB 1440
Page 1
Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
AB 1440
(Nazarian) - As Amended April 20, 2015
SUBJECT: Earthquake loss mitigation: grant programs
SUMMARY: Establishes the statutory structure for seismic
retrofit grant program for individual homeowners. Specifically,
this bill:
1)Requires the California Earthquake Authority (CEA) to form a
joint powers authority (JPA) with the Office of Emergency
Services (OES) to develop a seismic retrofit grant program for
individual homeowners.
2)Limits grant funding from this program to individual
homeowners and grant amounts to 75% of retrofit costs or
$3,000.
3)Requires the JPA to adopt regulations defining the type and
location of homes eligible for grant funding.
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4)Requires the JPA to adopt regulations to establish the
criteria for determining grant amounts.
5)Makes findings and declarations regarding earthquake
mitigation efforts and the need for residential seismic
retrofit programs.
EXISTING LAW:
1)Establishes the CEA as a publicly managed insurer to provide
residential earthquake insurance.
2)Defines residential earthquake insurance as a policy
protecting a residence with four or fewer dwelling units.
3)Requires OES to perform a variety of duties with respect to
specified emergency preparedness, mitigation, and response
activities in the state, including emergency medical services.
4)Establishes the Earthquake Loss Mitigation Fund (mitigation
fund) as a sub-account with the CEA Fund and directs the fund
to transfer 5% of its investment earnings into the fund each
year. This fund is available to pay for research and
mitigation programs undertaken by the CEA.
5)Allows public agencies to form JPAs for the exercise of shared
powers.
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FISCAL EFFECT: Undetermined
COMMENTS:
1)Purpose . According to the author, only 12% California
homeowners have earthquake insurance, but there are between
1.2 to 1.6 million pre-1940s homes with so called "cripple
walls," and homes on hillsides, and those with living space
over garages that are at serious risk in even a minor quake,
let alone a major one. California has an existing seismic
mitigation incentive program called Earthquake Brace + Bolt
(EBB), which is administered by the California Residential
Mitigation Program, but is limited to only 650 homes in the
Bay Area, LA County and Napa. The goal of this legislation is
to expand on Brace + Bolt and create a statewide earthquake
retrofit program to cover tens of thousands of more homes.
2)Brace + Bolt . The EBB program was created by the California
Residential Mitigation Program, which is a joint power
authority between the California Earthquake Authority and the
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Governor's Office of Emergency Services. The EBB was
developed to help homeowners lessen the potential for damage
to their houses during an earthquake. A residential seismic
retrofit strengthens an existing house, making it more
resistant to earthquake activity such as ground shaking and
soil failure, by bolting the house to its foundation and
adding bracing around the perimeter of the crawl space. The
EBB program provides homeowners up to $3,000 to strengthen
their foundation and lessen the potential for earthquake
damage. A typical retrofit may cost between $2,000 and $10,000
depending upon the location, the size of the house, and the
amount of work involved.
3)California Earthquake Authority . The CEA was formed through
legislation in 1995 and 1996 to address an
insurance-availability crisis that followed the 1994
Northridge earthquake. After that earthquake, many homeowners
found it difficult or impossible to find basic homeowner's
insurance. Many others were faced with the prospect of having
their homeowners' insurance non-renewed as insurance companies
tried to shed their exposure to earthquake risk. Because
state law requires insurers to offer earthquake insurance to
their applicants and holders of residential policies, the
insurers' retreat from the California market resulted in an
availability crisis for both homeowners and earthquake
insurance. The Department of Insurance reported in the summer
of 1996, at the height of the crisis, that 95 percent of the
homeowners' insurance market had either stopped, or severely
restricted, sales of new homeowners' policies. After the CEA
began operations in December 1996, the California homeowners'
insurance market recovered quickly. A Department of Insurance
report noted that at the peak of the availability crisis, 82
insurers had restricted the sale of new homeowners' insurance
policies. By October 1997, only three insurers were
restricting the sale of new policies. Since that time, the
requirement to offer earthquake insurance has not been a
factor in restricting the availability of homeowners'
insurance.
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REGISTERED SUPPORT / OPPOSITION:
Support
Department of Insurance (sponsor)
United Policyholders
Opposition
None received
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Analysis Prepared by:Paul Riches / INS. / (916) 319-2086