BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1302|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: SB 1302
Author: McGuire (D), et al.
Amended: 4/19/16
Vote: 27 - Urgency
SENATE INSURANCE COMMITTEE: 8-0, 4/13/16
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Liu, Mitchell,
Wieckowski
NO VOTE RECORDED: Hernandez
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Basic property insurance: California FAIR Plan
SOURCE: California Department of Insurance
DIGEST: This bill 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, as
specified; and declares that it is an urgency statute.
ANALYSIS:
Existing law:
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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 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 Insurance
Commissioner (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 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, beginning on March 1, 2017;
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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;
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 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;
4)Declares 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
The FAIR Plan was created by statute 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 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
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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 in high fire risk areas 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% 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
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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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified5/17/16)
California Department of Insurance (source)
California Apartment Association
California Association of Realtors
California Professional Firefighters
Consumer Federation of California
Independent Insurance Agents and Brokers of California
Personal Insurance Federation of California
Rural County Representatives of California
OPPOSITION: (Verified5/17/16)
None received
ARGUMENTS IN 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.
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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
knowledge.
Prepared by:Erin Ryan / INS. / (916) 651-4110
5/18/16 16:28:03
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