BILL ANALYSIS
SB 1406
Page 1
SENATE THIRD READING
SB 1406 (Banking, Finance and Insurance Committee)
As Amended July 1, 2010
Majority vote
SENATE VOTE :33-0
INSURANCE 12-0
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|Ayes:|Solorio, Gaines, | | |
| |Anderson, Caballero, | | |
| |Charles Calderon, Carter, | | |
| |Feuer, Hagman, Hayashi, | | |
| |Niello, Salas, Torres | | |
| | | | |
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SUMMARY : States that existing law shall be construed as
authorizing an insurer for up to 60 days after issuing or
renewing a policy of residential property insurance, to focus on
claims and its resources on services to existing policyholders
in the event of an earthquake and to temporarily defer the
mandatory offer. Specifically, this bill provides that:
1)In addition to affording administrative flexibility to
insurers for the routine management of their business,
existing law shall 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
on claims and its resources on 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)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 requires:
1)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
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insurance).
2)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.
3)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 on claims and its 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
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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, the focus on serving current insureds
after the earthquake was in compliance with existing law.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0005142