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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