BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1406|
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CONSENT
Bill No: SB 1406
Author: Senate Banking, Finance and Insurance Committee
Amended: As introduced
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/21/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal,
Padilla, Price, Runner
NO VOTE RECORDED: Cox, Liu
SUBJECT : Earthquake insurance: coverage offer
SOURCE : Author
DIGEST : This bill provides 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.
ANALYSIS : 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
CONTINUED
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insurance policy.
This bill clarifies 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.
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 3, 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."
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.
For approximately one week following the Northridge
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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. 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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
JA:nl 4/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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