BILL ANALYSIS
SB 1406
Page 1
Date of Hearing: June 23, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1406 (Committee on Banking, Finance and Insurance) - As
Amended: May 19, 2010
SENATE VOTE : 33-0
SUBJECT : Earthquake insurance: coverage offer.
SUMMARY : States that existing law should be construed as
authorizing an insurer for up to 60 days after issuing or
renewing a policy of residential property insurance, to focus
its resources on its services to existing policyholders in the
event of an earthquake and to temporarily defer the mandatory
offer. Specifically, this bill :
1)Provides that in addition to affording administrative
flexibility to insurers for the routine management of their
business, existing law should be construed as authorizing an
insurer, for a period not to exceed 60 days following the
issuance or renewal of a residential property insurance
policy, to focus its claims and other resources on its
services to existing policyholders in the event of an
earthquake and to temporarily defer the mandatory offer and
its associated workload, including any inspection or other
underwriting activity.
2)Provides that this bill does not vary the requirement that all
mandatory offers of earthquake insurance be made prior to,
concurrent with, or within 60 days following the issuance or
renewal of residential property insurance policy.
EXISTING LAW :
1)Requires each insurer issuing or renewing a policy of
residential property insurance to offer the insured party
coverage for loss or damage caused by an earthquake (i.e.,
earthquake insurance).
2)Requires the offer of earthquake insurance to be made prior
to, concurrent with, or within 60 days following the issuance
of the residential property insurance policy.
SB 1406
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3)Requires the offer of earthquake insurance to contain a
specified disclosure statement.
FISCAL EFFECT : No fiscal cost identified.
COMMENTS :
1)Purpose. The purpose of this bill is to 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.
2)Background. California's law mandating the offer of
earthquake insurance 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 the relevant legislation (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."
According to the author's office, 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. 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 (DOI) concluded that as long as the 60-day offer
requirement was met, the focus on serving current insureds
after the earthquake was in compliance with existing law.
SB 1406
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3)Clarifying amendments recommended:
a) Should be construed? The bill provides that existing
law "should be construed" as authorizing an insurer, for a
period not to exceed 60 days . . . to focus its claims and
other resources on its services to existing policyholders
in the event of an earthquake . . ." The meaning "should
be construed" in this context is not clear. Should the
phrase instead read: "shall be construed" or "may be
construed"?
b) An insurer and its claims. The bill provides that
insurer may focus "its claims" and other resources on its
services to existing policyholders in the event of an
earthquake. This phrasing is vague and can be made clearer
be replacing the phrase "its claims" with the phrase "on
claims". The bill would then provide as follows: An
insurer may focus on claims and its resources on services
to existing policyholders in the event of an earthquake.
REGISTERED SUPPORT / OPPOSITION :
Support
None received.
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086