BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2735 (Assembly Insurance Committee) Hearing Date: June 25,
2014
As Amended:June 11, 2014
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor (04/24/14)75-0/Pass
Asm. Appr. (04/09/14)17-0/Pass
Asm. Ins. (04/02/14)12-0/Pass
SUMMARY Would provide that if an insurer issues an earthquake
insurance policy not meeting the minimum statutory requirements
that is approved by the Insurance Commissioner (IC), no further
offer of earthquake coverage meeting the minimum offer
requirements and no notice of non-coverage is required if a
renewal of the earthquake policy is offered and written notice
is provided regarding the availability of additional coverage
that meets the minimum statutory offer requirements.
DIGEST
Existing law
1. Provides that no homeowners' insurance policy may be offered or
sold in California unless the homeowner is offered earthquake
coverage, either as part of the homeowners' policy, or as a
separate policy;
2. Requires the offer of earthquake insurance to be made prior to,
concurrent with, or within 60 days following the issuance or
renewal of a homeowners' insurance policy;
3. Specifies language that must be included in the offer of
earthquake coverage in at least 10-point boldface type,
beginning with :
"YOUR POLICY DOES NOT PROVIDE COVERAGE AGAINST THE PERIL OF
EARTHQUAKE.
CALIFORNIA LAW REQUIRES THAT EARTHQUAKE COVERAGE BE OFFERED TO
AB
2735 (Assembly Ins. Committee), Page 2
YOU AT YOUR OPTION.
WARNING: THESE COVERAGES MAY DIFFER SUBSTANTIALLY FROM AND
PROVIDE LESS PROTECTION THAN THE COVERAGE PROVIDED BY YOUR
HOMEOWNERS' INSURANCE POLICY?.";
4. Establishes minimum requirements for the offer of earthquake
insurance, also known as the "mini-policy," that fulfills the
mandatory offer requirement;
5. Provides that if the offer of earthquake insurance provided in
#1 is not accepted, the homeowners' insurer must offer
earthquake insurance to homeowners' policyholders at least every
other year;
6. Provides that when the homeowner has not purchased earthquake
coverage pursuant to the mandated offer, the insurer must notify
the homeowner that the homeowners' policy does not include
earthquake coverage, and provide a specific notice of
non-coverage on at least an every other year basis prior to, or
concurrent with, renewal of the homeowners' insurance policy;
7. Allows the IC to approve earthquake policies providing coverage
other than the minimum statutory offer requirements, as long as
at least one coverage offered meets the minimum criteria;
8. Establishes the California Earthquake Authority (CEA), a
privately financed, publicly managed entity to sell only
earthquake insurance.
This bill
1. Would provide that if an insurer issues an earthquake
insurance policy that does not meet the minimum statutory
offer requirements, as provided in #5 above, the insurer
does not have to send the statutory notice at the time of
renewal of the homeowners' policy regarding lack of
earthquake coverage if it has offered to renew the
earthquake policy, and provides written notice to the
homeowner with that renewal that additional earthquake
coverage is available;
2. Would require the written notice provided in #1 to be filed
with the IC at least 30 days prior to use, and specify that
it may not be used if disapproved by the IC for being
AB
2735 (Assembly Ins. Committee), Page 3
misleading or incomplete.
COMMENTS
1. Purpose of the bill To fix 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 match the standard mandatory
offer of coverage is still entitled to be reminded every
other year that it is their right to purchase a policy with
the standard mandatory offer coverage. Second, the bill
clarifies that the insurer does not have to send a homeowner
who has purchased coverage that is different from the
mandatory offer a currently required notice 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 different
coverage.
2. Background The Insurance Code specifies the minimum
earthquake coverage that must be offered to homeowners when
they purchase or renew a homeowners' insurance policy. The
statute does not mandate that the homeowner purchase that
coverage, or any earthquake insurance. The statute also
gives the Insurance Commissioner authority to approve rate
applications that are different from the standard minimum
earthquake policy, as long as at least one of the coverages
offered meets the mandatory minimum. The statute also
requires an insurer to send a specific notice every other
year to a homeowner who has not purchased the mandatory
offer policy, reminding them that they are not covered for
earthquake peril.
In 2012, the CEA began offering a new homeowners' "Choice"
product that allows homeowners more flexibility in how to
structure their earthquake insurance policy. With the Choice
product, homeowners can choose from a menu of coverages and
deductibles, giving them greater control over their premium.
For example, a homeowner can decide not to purchase contents
coverage, can choose from varying levels of loss of use
coverage, and can choose a separate deductible for each
coverage. Using this product, the homeowner may end up with
less, more, or simply different coverage than the standard
mandatory offer policy.
AB
2735 (Assembly Ins. Committee), Page 4
Under current statute, an insurer is required to send a
notice every other year at the time of renewal of the
homeowners' insurance policy that the homeowner lacks
earthquake coverage, even if the homeowner has purchased
earthquake coverage, such as the CEA Choice policy, that is
different than the mandatory minimum policy.
3. Support . The Association of California Insurance Companies
supports AB 2735 because it would clarify that no offer of
earthquake insurance is required if a customer previously
purchased a CEA Choice policy and the insurer has made a
renewal offer. This would make the renewal requirements for
the Choice policy the same as those for the basic policy.
According to the Personal Insurance federation of
California, AB 2735 would provide simple clarification that
if a consumer has purchased the CEA's Choice Product, they
would not also receive an additional, confusing and
erroneous offer stating that they do not have earthquake
insurance. The intent of creating the Choice Product was to
give consumers additional options, and without this
technical fix, consumers are at risk of confusion.
4. Opposition None received.
5. Questions This bill is intended to address an issue with
the CEA's new "Choice" products. According to the CEA, these
products may be different and offer the consumer more
choices, but such a policy is not necessarily worse than the
mandatory offer. The current language specifies the bill
would apply to policies that do not meet the minimum
coverage requirements. The CEA has proposed language that
would address the greater flexibility of the Choice
products. Should the language be changed to better reflect
the nature of these new policies?
6. Suggested Amendments .
a. On page 4, lines 23-34, change language to
read: "If an insurer issues or causes to be issued a
policy with earthquake coverage s different from the
coverages that does not meet the minimum coverage
requirements specified in subdivisions (a) and (b) of
Section 10089, pursuant to a rate application approved
by the commissioner in accordance with subdivision (c)
of Section 10089, no further or other offer of
AB
2735 (Assembly Ins. Committee), Page 5
earthquake coverage specified in subdivisions (a) and
(b) of Section 10089 meeting the minimum coverage
requirements and no further or other notice of
noncoverage is required by the insurer if both of the
following apply:"
b. Both this bill and AB 2064 (Cooley), also
being heard in this committee today, amend Insurance
Code section 10083. If both are agreed to and sent to
the Governor, double-jointing language will be
required to prevent chaptering out of one of the
bills.
7. Prior and Related Legislation
AB 2064 (Cooley), also being heard today, amends the same
section of the Insurance Code, and would update the
mandatory offer of earthquake insurance.
SB 251 (Calderon, Ch. 369, Statutes of 2013) allows an
insurer to send certain documents, including offers and
disclosures regarding earthquake insurance, electronically
in lieu of mailing, as specified, and provided a sunset date
of January 1, 2019. As a result, this bill amends both the
current statute, and the statute that will go into effect
post-sunset.
POSITIONS
Support
Association of California Insurance Companies
Personal Insurance Federation of California
Oppose
None received
Consultant: Erin Ryan (916) 651-4110
AB
2735 (Assembly Ins. Committee), Page 6