BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 1302 Hearing Date: April 13,
2016
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|Author: |McGuire |
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|Version: |February 19, 2016 |
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|Urgency: |Yes |Fiscal: |Yes |
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|Consultant:|Erin Ryan |
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Subject: Basic property insurance: California FAIR Plan
SUMMARY Requires insurers admitted to sell property insurance in the
state to provide the California FAIR (fair access to insurance
requirements) Plan (FAIR Plan) Internet Web site address and
statewide toll-free telephone number to an applicant for
insurance who is denied coverage, or a policyholder whose policy
is canceled or non-renewed; requires the FAIR Plan to establish
and maintain an Internet Web site through which a person may
receive information and assistance in applying for insurance;
requires an insurance agent or broker transacting basic property
insurance to assist a person in making an application for
insurance through the FAIR Plan; and declares that it is an
urgency statute in order to have the consumer protections in the
bill to become operative as soon as possible for homeowners who
are located in high-risk brush and wildfire areas and are having
difficulty obtaining insurance coverage for their property.
DIGEST
Existing law
1. Establishes the FAIR Plan to assure stability in the property
insurance market in California, to assure the availability of
basic property insurance as defined, to encourage maximum use of
the normal market provided by admitted insurers and licensed
surplus line brokers, and to provide for the equitable
distribution among admitted insurers of the basic responsibility
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for insuring qualified property for which basic property
insurance cannot be obtained through the normal market;
2. Requires all insurers admitted to transact property insurance
in the state to participate in the FAIR Plan;
3. Defines "basic property insurance" as insurance against direct
loss to real or tangible personal property at a fixed location
in those geographic or urban areas designated by the IC, from
perils insured under the standard fire policy and extended
coverage endorsement and vandalism and malicious mischief and
such other coverages as may be added with the approval of the
Insurance Commissioner (IC), as specified;
4. Requires the FAIR Plan to establish and maintain a statewide
toll-free "800" number for persons interested in applying for
insurance through the plan, and to have that number published in
general distribution telephone directories;
5. Requires every insurer member of the FAIR Plan to provide
applicants who are denied coverage the FAIR Plan's toll-free
number;
6. Requires every insurance agent or broker transacting basic
property insurance to either assist persons in making an
application for FAIR Plan insurance, or provide them with the
FAIR Plan toll-free number
This bill
1. Requires insurers admitted to sell property insurance in
the state to provide the FAIR Plan Internet Web site address
and statewide toll-free number telephone number to an
applicant for insurance who is denied coverage, or a
policyholder whose policy is canceled or non-renewed;
2. Requires the FAIR Plan to establish and maintain an
Internet Web site through which a person may receive
information and assistance in applying for insurance in
addition to a statewide toll-free telephone number, and
deletes a reference to an "800" number;
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3. Requires an insurance agent or broker transacting basic
property insurance to assist a person in making an
application for insurance through the FAIR Plan;
4. Declares that it is an urgency statute in order to have the
consumer protections in the bill to become operative as soon
as possible for homeowners who are located in high-risk
brush and wildfire areas and are having difficulty obtaining
insurance coverage for their property, and to provide
insurers with adequate time to prepare their required
notices.
COMMENTS
1. Purpose of the bill To ensure greater public awareness of
the availability of the FAIR Plan insurance option by
requiring insurers to include a reference to the FAIR Plan
Web site and toll-free phone number in a notice of
cancellation or non-renewal, and by requiring active
property insurance agents and brokers to either assist a
person in applying for FAIR Plan coverage or providing the
FAIR Plan Web site and toll-free number.
2. Background The FAIR Plan was created by state legislation
in 1968 following brush fires and riots in the 1960's that
led many insurers to exit urban areas or neighborhoods as
too risky to insure. Its stated purpose is "to assure
stability in the property insurance market for property
located in the State of California," and to "assure the
availability of basic property insurance?." It is a private
association based in Los Angeles comprised of all insurers
admitted to write property insurance in California. FAIR
Plan profits and losses are shared by its members in direct
proportion to their market share of property insurance
written in California. The FAIR Plan is not a state agency
and no taxpayer funds are involved.
The FAIR Plan offers a standard fire insurance policy for
both structure and contents of residential and commercial
properties. Its basic requirements are that the home or
property be in insurable condition, it cannot have been
vacant for more than one year, and no illegal activities
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take place at the property. A FAIR Plan policy does not
provide coverage for liability, theft or water damage
typically found in most homeowners' policies, however. The
homeowner or business generally must also purchase a
"Difference in Condition" policy or other supplemental
coverage from the voluntary insurance market when purchasing
a FAIR Plan policy. Several major insurance companies, but
not all, write such policies, including Farmers, Travelers
and Nationwide.
As the insurer of last resort, the FAIR Plan does not
advertise, and many homeowners who have been non-renewed or
are having difficulty finding insurance may be unaware of
the FAIR Plan insurance option. Until recently only about
6,600 out of 90,000 agents and brokers in the state were
registered to sell FAIR Plan policies, although according
the California Department of Insurance (CDI) that number has
increased to about 10,000 as a result of CDI outreach to the
agent and broker community since the fires of 2015. It
takes about two days for an agent or broker to register with
the FAIR Plan and requires little more than submitting a
copy of the agent or broker's license. No fees or testing
are required, and the FAIR Plan offers a 10% commission for
new business and 8% commission for renewals. At the same
time, some insurance agents or brokers may be unable to
place insurance with the FAIR Plan because they are
"captive" agents and can contractually only sell policies of
their contracting company.
There remains a big gap in understanding of the FAIR Plan
among many agents and brokers who are currently only
required by statute to provide homeowners looking for
insurance the FAIR Plan "800" toll-free phone number. They
are not required to actually help the consumer apply for
such coverage, and many do not understand the options for
coverage provided by the FAIR Plan.
The FAIR Plan reports that it has not seen an increase of
new business in wildland-urban interface areas as a result
of the drought and recent fires. With approximately 126,000
FAIR Plan dwelling policies in place in the state, 76% of
those policies are in urban areas, largely in the Los
Angeles area. As of February, the FAIR Plan had 24,538
policies in high and extreme wildfire risk areas, about 20%
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of its total policies.
Until recently, applicants for FAIR Plan coverage in
specific geographic areas had to provide the names of three
insurance companies that had denied insurance coverage for
their property in order to qualify for a FAIR Plan policy.
After a review following the Valley and Butte fires last
year, the IC in January directed the FAIR Plan to make
several changes to its operations, including some enhanced
coverage options, eliminating the requirement that
homeowners prove they were rejected three times for standard
insurance policies, and giving more access to brokers
registered with the FAIR Plan
To improve the ability of consumers to access the FAIR Plan
and identify brokers who can help them place such policies,
the FAIR Plan recently developed a broker lookup feature on
its website that allows the consumer to enter their zip code
or city to identify FAIR Plan registered brokers in their
area.
3. Support The CDI has sponsored SB 1302 because it heard
from many consumers affected by the catastrophic Valley and
Butte fires in 2015 who were facing cancellation or
non-renewal of their homeowners' policies that they were
unaware of the FAIR Plan. This bill is a modest but
important step in closing this information gap so that
consumers facing very difficult and expensive insurance
decisions have sufficient information to make the best
possible decision to protect their families.
The Rural County Representatives of California reports its
members have noticed a recent increase in the number of
property owners being non-renewed, particularly those in
high fire severity areas around the state. In these
instances, homeowners must be made aware of their options
for purchasing property insurance including the availability
of homeowners' insurance through the FAIR Plan. The
California Association of Realtors supports SB 1302 because
homeowners are often completely unaware of the basic
coverage that is available through the FAIR Plan and risk
losing the ability to close a transaction or risk a
technical default on their mortgage because of that lack of
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knowledge.
4. Opposition None received.
5. Questions The bill requires agents and brokers transacting
basic property insurance to "assist" a person in making an
application to the FAIR Plan, but does not define what
counts as assistance. See suggested amendment "c" below
6. Suggested Amendments
a. The bill requires insurers to make changes to
their operations and cancellation and nonrenewal
notices to consumers upon enactment. This may be
unrealistic. The interested parties have agreed to
amend the bill to delay implementation of this
requirement to six months after the effective date of
this bill becoming enacted;
b. On page 4, line 18 ADD "number" after
"toll-free telephone";
c. On page 4, line 25, after plan ADD "by
submitting an application at the person's request or
providing the person with the FAIR Plan's Internet Web
site and toll-free number";
d. Add Assemblymembers Bigelow and Maienschein as
co-authors.
POSITIONS
Support
California Apartment Association
California Association of Realtors
California Department of Insurance (Sponsor)
California Professional Firefighters
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Consumer Federation of California
Rural County Representatives of California
Oppose
None received
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