BILL ANALYSIS
AB 2022
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Date of Hearing: May 5, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2022 (Gaines) - As Introduced: February 17, 2010
And as Proposed to be Amended
SUBJECT : Property insurance: residential disclosure
SUMMARY : Revises the disclosure notice and the set of rights
that residential property insurers must provide to
policyholders. Specifically, this bill :
1)Requires the California Residential Insurance Disclosure
Notice to Consumers (disclosure notice) to be printed in at
least 12-point type.
2)Requires the disclosure notice to identify the coverage
purchased by the customer from among the following primary
forms of residential dwelling insurance coverage, and defines
the terms:
a) Actual cash value coverage;
b) Replacement cost coverage;
c) Extended replacement cost coverage;
d) Guaranteed replacement cost; and
e) Building code upgrade coverage.
3)Requires the disclosure notice to identify several key facts
in a new category titled "Things You Should Know About
Residential Dwelling Insurance" and explains the terms:
a) Avoid being underinsured;
b) The residential dwelling coverage limit;
c) Demand surge;
d) Changes to property;
e) Exclusions;
f) Contents (personal property) coverage disclosure; and
g) Consumer assistance.
4)Requires the California Residential Property Insurance Bill of
Rights to be plainly prepared in at least 12-point type,
rather than the present 10-point type, restates seven rights
currently provided to residential property insurance
policyholders, strengthens the disclosure of one existing
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right (i.e., requires the explanation for a policy
cancellation or nonrenewal to be in writing), and adds the
right to an offer of coverage and premium quote for earthquake
coverage.
5)Deletes two guidance points that are provided in the existing
disclosure notice:
a) Keep accurate records of renovations and improvements to
the structure of your home, as it could affect your need to
increase your coverage; and
b) Comparison shop for insurance, as not all policies are
the same and coverages and prices vary.
EXISTING LAW :
1)Requires insurers that sell residential property insurance to
disclose to buyers the principal forms of insurance coverage
for residential dwellings, and the form of dwelling coverage
that the buyer has purchased. This notice is named the
California Residential Property Insurance Disclosure Statement
(disclosure statement).
2)Specifies that the disclosure statement shall contain the
following forms of dwelling coverages and defines the terms:
a) Guaranteed replacement cost coverage with full building
code upgrade;
b) Guaranteed replacement cost coverage with limited or no
building code upgrade;
c) Limited replacement cost coverage with an additional
percentage;
d) Limited replacement cost coverage with no additional
percentage;
e) Actual cash value coverage; and
f) Building code upgrade.
3)Specifies that the disclosure statement does not explain the
types of contents coverage (furniture, clothing, etc.)
provided by the residential policy.
4)Requires the disclosure statement to be accompanied by a
California Residential Property Insurance Bill of Rights
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(property bill of rights) that is printed in at least 10-point
type.
5)Requires this property bill of rights to contain both items of
advice (such as "keep accurate records of renovations and
improvements to the structure of your home") and information
that the consumer is entitled to receive (including a copy of
the residential policy and an explanation of how the policy
limits were established).
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . The purpose of this bill is to revise the disclosure
notice required to be provided to homeowners by insurers so it
is shorter, easier to read, and to make it possible for the
homeowner to review the adequacy of his or her coverage in the
event of a loss or a major catastrophe.
2)Background . The California Residential Property Insurance
Disclosure legislation, which was adopted in 1992, was the
response to the insurance claims issues arising from the
Oakland Hills Fire of 1991. There were approximately 3,000
houses and apartments that were completely destroyed by that
fire and many of the homeowners were significantly
underinsured. According to the author, the main purpose of
this disclosure legislation was to alert policyholders to the
various forms of coverage available so they would know the
importance of seeking Guaranteed Replacement Coverage and to
become aware of the their current coverages and options.
3)Arguments in support. Since the enactment of the disclosure
legislation in 1992, California has had the misfortune to
suffer several major disasters, including major wildfires in
Southern California. The author and the Department of
Insurance (DOI) state that the disclosure notice, even with
amendments over the years, has become outdated in its content.
Guaranteed Replacement Cost coverage is offered by only four
or five insurers in the entire homeowners insurance market.
Further, due to the length of the disclosure notice, its
cumbersome charts, and the technical descriptions of coverage
and responsibilities, the disclosure notice fails to provide
the readability necessary to effectively convey the important
information.
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According to the author and the DOI, the revised disclosure
notice is easier to read, updates key terms in homeowners
policies, emphasizes the avoidance of underinsurance, and
describes the effect of a demand surge on construction costs.
This information will help homeowners in reviewing the
adequacy of their insurance coverages in the event of a
catastrophe such as a wildfire.
4)Clarifying or technical changes recommended. The bill
contains the following phrases that are not clear or that
could be modified to better convey their intended message:
a) Actual Cash Value Coverage is the most limited level of
coverage listed. It is understood that this title intends
to convey that this coverage provides the least insurance.
Therefore, it recommended that this statement be amended to
clearly state that Actual Cash Value Coverage provides the
least insurance coverage.
b) Guaranteed Replacement Cost is missing the word
"Coverage" in the disclosure notice . The context is clear
that the disclosure notice is referring to Guaranteed
Replacement Cost Coverage. Thus, it is recommended that
the bill be amended to include the missing word,
"Coverage".
c) Things You Should Know About Residential Dwelling
Insurance. Since the word "things" in this context is not
very exact, it is recommended that the disclosure notice
replace the word "things" with another word such as "facts"
or "information".
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Insurance (Sponsor)
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
AB 2022
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