BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON INSURANCE
                             Senator Richard Roth, Chair
                                2015 - 2016  Regular 

          Bill No:             SB 335         Hearing Date:    April 22,  
          2015
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          |Author:    |Roth                                                 |
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          |Version:   |February 23, 2015                                    |
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          |Urgency:   |No                     |Fiscal:    |No               |
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          |Consultant:|Erin Ryan                                            |
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                           Subject:  Earthquake insurance


           SUMMARY     Requires additional earthquake insurance premium paid as a  
          result of failure to comply with specified building code  
          standards to be refunded to an insured that subsequently brings  
          the dwelling up to code, pro-rated as of the date the approved  
          inspection record is received by the insurer, and makes other  
          technical and clarifying changes.
          
           
          DIGEST
            
          Existing law
            
           1.  Generally provides for the regulation of residential earthquake  
              insurance;

           2.  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;

           3.  Allows insurers to charge an additional earthquake premium or  
              deductible if a dwelling fails to comply with specified uniform  
              building codes; (10082.5)

           4.  Provides that if the dwelling is subsequently brought into  
              compliance with the applicable building code, then the  
              additional premium or deductible shall not be charged;







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           5.  Requires a copy of the approved inspection record for the work  
              performed to bring the dwelling into compliance be submitted by  
              the insured to the insurer to verify that the retrofits have  
              been performed;

           6.  Requires personal lines insurers, including but not limited to  
              homeowners' and automobile insurers, whenever a policy  
              terminates or there is a reduction in coverage, to refund the  
              gross unearned premium to the insured within 25 business days  
              after the insurer receives notice of the event that generated  
              the unearned premium. 

           

          This bill

            1.  Requires additional premium or deductible paid as a result  
              of failure to conform with building codes to be refunded to  
              an insured that brings the dwelling into compliance,  
              prorated as of the date the approved inspection record is  
              received by the insurer;

           2.  Makes other technical and clarifying changes.


           COMMENTS
            
          1.  Purpose of the bill    To ensure that homeowners who repair  
              or retrofit their homes to meet required building codes get  
              a refund of any surcharges for noncompliance they have  
              pre-paid once their home is brought into compliance.  

           2.  Background    Fewer than 11% of California homeowners  
              purchase earthquake insurance, despite predictions that the  
              state will experience a major earthquake sometime in the  
              next 30 years. The low frequency of earthquake disasters,  
              compared to other natural catastrophes, tends to shape the  
              perception that earthquake risk is much lower than it  
              actually is, even in places where there have been very  
              deadly and damaging events like California.  In addition,  
              earthquake insurance policies can be expensive and carry  
              large deductibles, making them unattractive to homeowners  
              who are not mandated to carry such coverage by law or  








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              required to purchase it by their lenders.
               
               Current law allows earthquake insurers to charge an  
              additional earthquake premium or deductible if a dwelling  
              fails to meet specified building standards. It also  
              specifies that if the dwelling is subsequently brought into  
              compliance, then the additional premium or deductible  
              attributed to non-compliance shall not be charged. A copy of  
              the approved inspection record must be submitted to the  
              insurer to verify that the retrofits have been performed.  
              (Insurance Code 10082.5). Current law requires personal  
              lines insurers, whenever a policy terminates, or there is a  
              reduction in coverage, to refund the gross unearned premium  
              to the insured within 25 business days after the insurer  
              receives notice of the event that generated the unearned  
              premium. (Insurance Code 481.5)  This bill makes clear that  
              a homeowner is entitled to a refund of any premium surcharge  
              as of the date the reason for the surcharge is eliminated.

           3.  Support   According to the author, individuals that make the  
              necessary improvements and upgrades to their homes to meet  
              building code standards to protect against earthquake damage  
              should not have to pay the higher premiums charged to those  
              who fail to comply with building code standards. Many  
              homeowners who purchase earthquake insurance pay their  
              premiums annually, or every six months, and they should be  
              entitled to a quick refund of any excess paid. The  
              California Association of Realtors supports SB 335 because  
              it offers an equitable result for homeowners who bring their  
              homes into compliance with recommended seismic  
              reinforcements, and provides an additional incentive to be  
              pro-active in addressing the seismic safety of their homes.

           4.  Prior and Related Legislation   SB 602 (Monning) allows the  
              CEA to create a new voluntary financing tool for homeowners  
              to mitigate and retrofit their homes against earthquake  
              damage. 

           

          POSITIONS
            
          Support
           








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          California Association of Realtors  

          Oppose
               
          None received

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