BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 1406 (Comm. On Banking, Finance & Insurance) Hearing Date:
April 21, 2010
As Introduced: February 19, 2010
Fiscal: No
Urgency: No
SUMMARY Would expressly provide that an insurer can focus its
claims and other services on existing policyholders after an
earthquake as long as all new residential insureds receive an
offer of earthquake insurance as required within the mandatory
60 day period of current law.
DIGEST
Existing law
1. Specifies that no policy of residential property insurance may
be issued or delivered in California unless the named insured is
offered coverage for loss from the peril of earthquake.
2. Authorizes the offer of earthquake coverage to be made prior
to, concurrent with, or within 60 days following the issuance or
renewal of a residential property insurance policy.
This bill
1. Would clarify that an insurer can focus its claims and
other resources on services to its existing policyholders
after an earthquake, and temporarily defer the mandatory
offer and its associated workload, as long as the mandatory
earthquake offer is made within the 60 day period from the
issuance or deliverance of a policy of residential property
insurance as required by law.
COMMENTS
SB
1406 (Comm. On B, F&I), Page 2
1. Purpose of the bill To clarify that in the event of an
earthquake affecting an insurer's existing holders of an
earthquake insurance policy, an insurer may focus its
resources on services to its existing insureds, and
temporarily defer the issuance of new offers of earthquake
insurance, as long as all such offers are made within the 60
day window currently required.
2. Background California's mandatory earthquake offer law was
adopted in 1984. At that time, it included the requirement
that the offer of earthquake coverage be provided prior to,
concurrent with, or within 60 days following the issuance or
renewal of the residential property insurance policy.
According to the analysis of the May 3rd, 1984 version of
that bill (AB 2865-McAlister) prepared by the Assembly
Finance and Insurance Committee,
"The 60 day "latitude" language serves two purposes.
First, in the event that there is an earthquake, a
company could offer the homeowner coverage at some
point within the 60 days following the earthquake.
This permits the insurers to reduce their risk because
an after shock could damage property with
newly-acquired earthquake coverage. The company's
underwriters would be able to rate the risk and
determine the appropriate premium.
Second, some insurers can continue to accept/nonaccept
the homeowner applicant prior to offering the
earthquake coverage."
3. As described in the 1984 Assembly Finance and Insurance bill
analysis, the "60 day latitude language" was intended to
have practical effects and to facilitate the ability of
insurers to comply with the requirement, while continuing to
offer homeowners insurance, and make offers of earthquake
insurance, even at a time of the occurrence of an
earthquake.
4. For approximately one week following the Northridge
earthquake in January 1994, when many individuals who had
purchased earthquake insurance were seeking assistance,
insurance companies were criticized for focusing their
organizational resources on these current customers, rather
than making offers of earthquake insurance to new customers.
SB
1406 (Comm. On B, F&I), Page 3
This produced confusion and disrupted the focus on insured
persons who had the foresight to buy earthquake insurance.
Within a short time, the Department of Insurance concluded
that as long as the 60 day offer requirement was met, such a
focus on current insureds after an earthquake was in
compliance with existing law.
5. This bill clarifies that the performance by an insurer of
its obligations to its existing earthquake insureds after an
earthquake has occurred is an appropriate priority and is
consistent with its obligations under the mandatory offer
law, as long as offers to extend earthquake coverage to new
customers are made on a timely basis in compliance with
existing law.
6. Support None
7. Opposition None
8. Questions None
9. Suggested Amendments None
10. Prior and Related Legislation AB 2865, added as Chapter
916, Statutes of 1984.
POSITIONS
Support
None
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102