BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: SB 1302 Hearing Date: April 13, 2016 ----------------------------------------------------------------- |Author: |McGuire | |-----------+-----------------------------------------------------| |Version: |February 19, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |Yes |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Erin Ryan | | | | ----------------------------------------------------------------- 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 SB 1302 (McGuire) Page 2 of ? 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; SB 1302 (McGuire) Page 3 of ? 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 SB 1302 (McGuire) Page 4 of ? 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% SB 1302 (McGuire) Page 5 of ? 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 SB 1302 (McGuire) Page 6 of ? 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 SB 1302 (McGuire) Page 7 of ? Consumer Federation of California Rural County Representatives of California Oppose None received -- END --