BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 336 Hearing Date: April 22,
2015
-----------------------------------------------------------------
|Author: |Roth |
|-----------+-----------------------------------------------------|
|Version: |February 23, 2015 |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Urgency: |No |Fiscal: |No |
-----------------------------------------------------------------
-----------------------------------------------------------------
|Consultant:|Erin Ryan |
| | |
-----------------------------------------------------------------
Subject: Earthquake insurance: rates
SUMMARY Recasts the premium discount or credit for seismic
retrofitting on California Earthquake Authority (CEA) policies
to require that the discount or credit be at least 5%.
DIGEST
Existing law
1. Establishes the California Earthquake Authority, a privately
financed, publicly managed entity to sell only earthquake
insurance;
2. Requires rates charged by the CEA to be actuarially sound so as
not to be excessive, inadequate or unfairly discriminatory;
3. Establishes factors to be included in rates, including, but not
limited to the location of the insured property and its
proximity to earthquake faults, the soil type on which the
dwelling is built, the construction type and features of the
dwelling, the age of the dwelling, and the presence of
earthquake hazard reduction factors;
4. Provides that CEA policyholders who have retrofitted their
homes to withstand earthquake shake damage according to
standards set by the CEA are entitled to a 5% premium discount
or credit;
SB 336 (Roth) Page 2
of ?
5. Allows the CEA board to approve a premium discount or credit
above 5% as long as it is actuarially sound.
This bill
1. Recasts the premium discount for seismic retrofitting on
CEA policies to require that the discount or credit be at
least 5%.
COMMENTS
1. Purpose of the bill To clarify the statute so that premium
discounts for seismic retrofitting match the reduction in
risk of homes that have been seismically retrofitted to
established standards.
2. Background According to data from the California
Department of Insurance, fewer than11% of homeowners in
California purchase earthquake insurance. The CEA currently
writes about 73% of all residential earthquake insurance
policies in the state.
Earthquake insurance must be offered to all homeowners who
purchase homeowners' insurance but there is no requirement
for the homeowner to purchase it. Part of the reason for the
low take-up rate for earthquake insurance is its cost and
high deductibles. Providing discounted insurance to
homeowners who retrofit their homes is fiscally sound, may
incentivize homeowners to purchase earthquake insurance, and
reduces the future impact of a major earthquake.
Existing law provides that CEA policyholders who have
retrofitted their homes according to standards established
by the CEA shall get a premium discount or credit of 5%.
The board may approve a premium or discount above 5% as long
as the discount or credit is determined to be actuarially
SB 336 (Roth) Page 3
of ?
sound. The CEA has undertaken research to determine the
actuarial impact of retrofitting, and should offer the
largest discounts available that remain actuarially sound.
3. Support According to the author, everything possible
should be done to encourage homeowners to both retrofit
their homes and protect themselves against a major
earthquake by purchasing earthquake insurance. Those who do
choose to reduce future damage by retrofitting their homes
should get the full benefit of the reduction in risk to
their homes through lower earthquake insurance premiums.
4. Opposition None received.
5. 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
Community Associations Institute
Oppose
None received
-- END --