BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        SB 336|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
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                                      CONSENT 


          Bill No:  SB 336
          Author:   Roth (D)
          Introduced:2/23/15  
          Vote:     21  

           SENATE INSURANCE COMMITTEE:  7-0, 4/22/15
           AYES:  Roth, Gaines, Berryhill, Hernandez, Liu, Mitchell,  
            Wieckowski
           NO VOTE RECORDED:  Hall

           SUBJECT:   Earthquake insurance:  rates


          SOURCE:    Author


          DIGEST:  This bill 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%.


          ANALYSIS:   


          Existing law:


           1)  Establishes the CEA, 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  








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              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.


           5)  Allows the CEA Board to approve a premium discount or  
              credit above 5% as long as it is actuarially sound.


          This bill recasts the premium discount for seismic retrofitting  
          on CEA policies to require that the discount or credit be at  
          least 5%.


          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.








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          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 CEA  
          Board may approve a premium or discount above 5% as long as the  
          discount or credit is determined to be actuarially sound.  The  
          CEA has undertaken research to determine the actuarial impact of  
          retrofitting, and should offer the largest discounts available  
          that remain actuarially sound.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified4/22/15)




          Community Associations Institute  




           OPPOSITION:   (Verified4/22/15)


          None received


          ARGUMENTS IN 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.


          Prepared by:Erin Ryan / INS. / (916) 651-4110
          4/24/15 15:45:05









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