BILL ANALYSIS �
AB 2735
Page 1
Date of Hearing: April 2, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 2735 (Committee on Insurance) - As Amended: March 27, 2014
SUBJECT : Earthquake Insurance
SUMMARY : Clarifies existing requirements to provide homeowners
with notices of their right to purchase earthquake insurance.
Specifically, this bill :
1)Permits insurers to provide an alternate notice of a
homeowner's right to purchase earthquake insurance every other
year and upon the issuance or renewal of a homeowner's
insurance policy if:
a) The homeowner has purchased earthquake insurance
with coverage limits that are lower than the standard
earthquake insurance policy.
b) The insurer has offered to renew the earthquake
insurance policy.
c) The insurer provides written notice of the right to
purchase a policy with the standard coverage limits.
d) The Insurance Commissioner approves the alternate
notice.
EXISTING LAW :
1)Requires that individuals purchasing a homeowner's insurance
policy be offered an earthquake insurance policy that meets
minimum requirements.
2)Establishes the California Earthquake Authority (CEA) as a
publicly managed insurer to provide earthquake insurance.
3)Requires that homeowners be notified of their right to
purchase earthquake insurance upon the issuance or renewal of
a homeowner's insurance policy.
4)Requires that holders of a homeowner's insurance policy who do
not have earthquake insurance be notified of their right to
AB 2735
Page 2
purchase earthquake insurance at least every other year.
5)Requires that the notice begin with the following sentence:
"YOUR POLICY DOES NOT PROVIDE COVERAGE AGAINST THE PERIL OF
EARTHQUAKE."
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose . This bill fixes two problems associated with notices
related to earthquake insurance. First, the bill clarifies
that a homeowner who has purchased an earthquake insurance
policy that does not satisfy the standard coverage requirement
is still entitled to be reminded every other year that it is
their right to purchase a policy that meets the standard
coverage requirements. Second, the bill clarifies that the
insurer does not have to send a mandatory notice to a
homeowner with below standard coverage that includes language
saying that they do not have earthquake insurance. This
notice would be misleading or confusing to a homeowner who has
purchased earthquake insurance with lower coverage. The bill
requires that insurers may use an alternate notice filed with
the Insurance Commissioner instead of the notice specified in
statute.
2)Earthquake Insurance . The CEA was formed through legislation
in 1995 and 1996 to address an insurance-availability crisis
that followed the 1994 Northridge earthquake. After that
earthquake, many homeowners found it difficult or impossible
to find basic homeowner's insurance. Many others were faced
with the prospect of having their homeowners' insurance
non-renewed as insurance companies tried to shed their
exposure to earthquake risk. Because state law requires
insurers to offer earthquake insurance to their applicants and
holders of residential policies, the insurers' retreat from
the California market resulted in an availability crisis for
both homeowners and earthquake insurance. The California
Department of Insurance reported in the summer of 1996, at the
height of the crisis, that 95 percent of the homeowners'
insurance market had either stopped, or severely restricted,
sales of new homeowners policies.
After the CEA began operations in December 1996, the
California homeowners' insurance market recovered quickly. A
AB 2735
Page 3
Department of Insurance report noted that at the peak of the
availability crisis, 82 insurers had restricted the sale of
new homeowners' insurance policies. By October 1997, only
three insurers were restricting the sale of new policies.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Insurance Companies (ACIC)
Opposition
None received
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086