BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 336| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 336 Page 2 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. SB 336 Page 3 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 SB 336 Page 4 **** END ****