BILL NUMBER: AB 2535 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Blakeslee
FEBRUARY 19, 2010
An act to amend Section 10089.16 of the Insurance Code, relating
to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2535, as introduced, Blakeslee. Insurance: California
Earthquake Authority.
Existing law authorizes the California Earthquake Authority,
administered under the authority of the commissioner, to transact
basic residential earthquake insurance. Existing law authorizes the
governing board of the authority to take certain actions to open the
authority to participation by insurers, who have not elected to
participate in the authority by contributing the required operating
capital, in order to act upon findings and recommendations reported
to the Legislature or to implement a specific finding by the
commissioner or the board that modification of the requirements for
entry into the authority is necessary to broaden the availability of
residential property or residential earthquake insurance. Any action
by the board, to act upon findings and recommendations reported to
the Legislature or to implement a specific finding by the
commissioner or the board that modification of requirements for entry
into the authority is necessary to broaden the availability of
residential property or residential earthquake insurance, is subject
to certain limitations, including, but not limited to, a finding of
necessity, as specified. All materials and documents prepared or used
by the authority to make a finding of necessity, other than
proprietary materials and documents owned or licensed by third
parties, are considered public documents and are required to be made
available to the public.
This bill would require that the above-mentioned materials and
documents be made available in electronic form upon request by a
member of the public.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10089.16 of the Insurance Code is amended to
read:
10089.16. (a) On application to the board, payment of any
assessments and fees calculated by the board, and fulfillment of any
additional requirements imposed by the board, nonparticipating
insurers may become participants in the authority with all rights and
privileges attendant to that participation.
(b) In order to act upon any findings and recommendations reported
to the Legislature pursuant to Section 10089.13, or to implement a
specific finding by the commissioner or the board that modification
of requirements for entry into the authority is necessary to broaden
the availability of residential property or residential earthquake
insurance, the board is authorized to open the authority to
participation by insurers who have not elected to participate in
compliance with Section 10089.15. In implementing the authority
granted by this section, the board may:
(1) Offer incentives for insurers to participate in the authority.
(2) Allow any insurer or insurer group that has not elected to
become a participating insurer to become an associate participating
insurer without complying with the capital contribution requirements
of Section 10089.15 if it has maintained or exceeded its number of
policies of residential property insurance written as of January 1,
1996.
(c) Any action by the board pursuant to subdivision (b) shall be
subject to the following conditions and limitations:
(1) Any deliberation and action by the board shall be conducted at
a public meeting of the board.
(2) No action may be taken within one year of the date upon which
the authority begins writing policies of basic residential earthquake
insurance.
(3) The board shall have no authority to modify the requirements
of Section 10089.23, 10089.30, or 10089.31, or to provide, in any
other manner, for reduction of the liability of an insurer or insurer
group to comply with the assessments placed upon participating
insurers in the event of a loss.
(4) Notwithstanding Section 10089.11, any action of the board
pursuant to subdivision (b) shall be by regulation promulgated by the
board. Notwithstanding any other provision of law, there shall be no
authority by the board to promulgate emergency regulations to
implement subdivision (b). No regulations may be proposed within one
year of the date upon which the authority begins writing policies of
basic residential earthquake insurance. Notwithstanding any exception
provided in Section 11343 of the Government Code, any regulation
adopted pursuant to subdivision (b) shall be submitted to the Office
of Administrative Law for approval pursuant to the Administrative
Procedure Act (Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code) .
(5) Any action by the board to establish an incentive pursuant to
subdivision (b) that is available to a single insurer or insurer
group shall be based upon standards adopted by the board that are not
arbitrary or discriminatory. Notwithstanding Section 10089.11, these
standards shall be established by regulation promulgated by the
board.
(6) A finding of necessity pursuant to subdivision (b) shall state
the specific facts and conditions that establish the necessity and
justify the actions to implement subdivision (b). All materials and
documents prepared or used by the authority to determine the
necessity to implement subdivision (b), other than proprietary
materials and documents owned or licensed by third parties, shall be
considered public documents, and copies of the public documents shall
be made available to the public for inspection at no charge. Members
of the public may purchase copies of these documents from the
authority at actual cost. All such materials and documents shall
also be made available in electronic form upon request by a member
of the public.
(d) (1) A nonparticipating insurer that applies to the board to
become an authority participant must shall
submit to the authority, in connection with its application,
earthquake insurance policy data sufficient for the authority to
ascertain through computer modeling the current likelihood and
magnitude of earthquake insurance losses that would be attributable
to that insurer's book of earthquake insurance business during its
first full year of authority participation. The authority's modeled
representation of such insured earthquake losses shall be termed the
"earthquake insurance risk profile" of that insurer.
(2) If in the board's sole judgment the earthquake insurance risk
profile the nonparticipating insurer would bring to the authority
would be more likely to produce losses for the authority, or would be
likely to produce greater losses for the authority, than would a
book of existing authority business of similar size, the board may
require as a condition for approving the insurer's application that
the insurer pay up to five annual risk capital surcharges into the
authority in addition to any capital contribution required by Section
10089.15 and any assessment obligations required by Sections
10089.23, 10089.30, and 10089.31.
(3) The board shall first calculate the nonparticipating insurer's
risk capital surcharge as of the first anniversary of the date the
insurer first placed or renewed into the authority earthquake
insurance policies. The board shall recalculate the risk capital
surcharge for each of up to four years after the first year of
calculation and shall impose the resulting surcharge; if the insurer'
s earthquake insurance risk profile becomes substantially similar to
the authority's average risk profile for a book of authority
earthquake insurance business of similar size, the board shall
relieve the insurer of any further obligation to pay risk capital
surcharges.
(4) Each annual risk capital surcharge shall be in an amount that,
in the board's determination, is equal to the authority's increased
cost of providing capacity to insure that insurer's excess earthquake
insurance risk. The authority shall cause to be sent to each such
insurer a notice of that insurer's annual risk capital surcharge.
(5) Full payment of a noticed risk capital surcharge shall be due
within 30 days and shall be overdue after 30 days. Penalties and
interest shall be assessed for late payments in the same manner as
provided for late payments of the insurer gross premium tax provided
for in Section 12258 of the Revenue and Taxation Code. The board may
waive the penalties and interest for good cause shown.
(e) Associate participating insurers shall place all new policies
of residential earthquake insurance, when writing new policies of
residential property insurance, into the authority. Insurers placing
policies with the authority under this section shall be subject to
the assessments provided for in Sections 10089.23, 10089.30, and
10089.31. Notwithstanding subdivision (m) of Section 10089.5,
"residential earthquake insurance market share" for purposes of any
assessments pursuant to Sections 10089.23, 10089.30, and 10089.31
levied on an associate participating insurer shall mean an individual
associate participating insurer's total direct premium received for
residential earthquake policies written or renewed by the authority
for which the insurer has written or renewed an underlying policy of
residential property insurance, divided by the total gross premiums
received by all admitted insurers and the authority for their basic
residential earthquake insurance in California.
(f) (1) An associate participating insurer shall not cancel or
refuse to renew a residential property insurance policy existing on
the date it elected to become an associate participating insurer
after an offer of earthquake coverage is accepted solely because the
insured has accepted that offer of earthquake coverage.
(2) An associate participating insurer shall maintain in force any
policy of residential property insurance existing on the date it
elected to become an associate participating insurer after an offer
of earthquake insurance has been accepted, unless the policy is
properly canceled pursuant to Section 676 or the associate
participating insurer has grounds for nonrenewal pursuant to
subdivision (g).
(g) An associate participating insurer may refuse to renew a
policy of residential property insurance after an offer of earthquake
coverage has been accepted if one of the following exceptions
applies:
(1) The policy is terminated by the named insured.
(2) The policy is refused renewal on the basis of sound
underwriting principles that relate to the coverages provided by the
underlying policy of residential property insurance and that are
consistent with the approved rating plan and related documents filed
with the department as required by existing law.
(3) The commissioner finds that the exposure to potential losses
will threaten the solvency of the associate participating insurer or
place the associate participating insurer in a hazardous condition.
"Hazardous condition" has the same meaning as in Section 1065.1 and
includes, but is not limited to, a condition in which an associate
participating insurer makes claims payments for losses resulting from
an earthquake that occurred within the preceding two years and that
required a reduction in policyholder surplus of at least 25 percent
for payment of those claims.
(4) There is cancellation under Section 676.
(5) The associate participating insurer has lost or experienced a
substantial reduction in the availability or scope of reinsurance
coverage or a substantial increase in the premium charged for
reinsurance coverage for its residential property insurance policies,
and the commissioner has approved a plan for the nonrenewals that is
fair and equitable, and that is responsive to the changes in the
associate participating insurer's reinsurance position.
(6) The named insured is insured based upon membership in a motor
club, as defined in Section 12142, and the membership in that
organization is terminated as provided in paragraph (2) of
subdivision (c) of Section 1861.03.
(h) For associate participating insurers, underwriting standards
applicable to residential property insurance shall not be applied in
an unfairly discriminatory fashion against any person who accepts or
elects to continue earthquake coverage.
(i) Associate participating insurers shall be subject to the
following requirements:
(1) Associate participating insurers shall conform to all
provisions of the authority's plan of operation applicable to
participating insurers.
(2) No property that has previously been covered by a policy of
residential earthquake insurance written by the associate
participating insurer or associate participating insurer group,
absent at least one full policy year with an insurer not affiliated
with the associate participating insurer or its group, may be placed
into the authority by an associate participating insurer.
(3) Any associate participating insurer or associate participating
insurer group defined in paragraph (2) of subdivision (b) that has
failed to maintain or exceed the number of policies of residential
property insurance in force on January 1, 1996, may become an
associate participating insurer by contributing additional capital
into the authority at a rate to be established by the board, which
shall be a per policy rate comparable to the average cost per policy
paid by a participating insurer that joins the authority pursuant to
Section 10089.15.
(j) Any associate participating insurer shall be required to
establish procedures to verify compliance with this section. The
procedures shall require verification that each basic residential
earthquake policy written by the authority complies with paragraph
(2) of subdivision (i).
(k) Any violation of this section may be enforced as a violation
of the Unfair Trade Practices Act (Article 6.5 (commencing with
Section 790) of Chapter 1 of Part 2 of Division 1). Each policy of
basic residential earthquake insurance written in the authority by an
associate participating insurer in violation of this section shall
be deemed to be a separate violation of the Unfair Trade Practices
Act.
(l) For purposes of this section, no insurer or associate
participating insurer may participate in the authority unless all
affiliated insurers participate in the authority.
(m) Policies of basic residential earthquake insurance written by
associate participating insurers shall be subject to assessment by
the California Insurance Guarantee Association and shall be covered
to the extent provided in Article 14.2 (commencing with Section 1063)
of Chapter 1 of Part 2 of Division 1. Except as provided in Section
10089.34, insurance policies written by participating insurers that
are not associate participating insurers shall not be subject to
assessment by the California Insurance Guarantee Association if the
assessment is imposed to pay claims covered by policies of basic
residential earthquake insurance written by an associate
participating insurer.