BILL ANALYSIS �
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CONSENT
Bill No: AB 2735
Author: Assembly Insurance Committee
Amended: 6/30/14 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 10-0, 6/25/14
AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,
Nielsen, Roth, Torres, Vidak
NO VOTE RECORDED: Gaines
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 75-0, 4/24/14 (Consent) - See last page for
vote
SUBJECT : Earthquake insurance
SOURCE : Author
DIGEST : This bill provides that if an insurer issues or
causes to be issued a policy with earthquake coverages other
than the specified coverages, but in accordance with an approved
rate application, no further or other offer of earthquake
coverage meeting the coverage and deductible requirements and no
further or other notice of noncoverage is required by the
insurer if a renewal of that policy is offered, and a written
notice is provided with that renewal regarding additional
earthquake coverage that is available. This bill also requires
the form of that written notice to be approved by the Insurance
Commissioner.
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AB 2735
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ANALYSIS :
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 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
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.
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AB 2735
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7. Allows the Insurance Commissioner 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. Provides that if an insurer issues or causes to be issued a
policy with earthquake coverages other than the specified
coverages, but in accordance with an approved rate
application, no further or other offer of earthquake coverage
meeting the coverage and deductible requirements and no
further or other notice of noncoverage is required by the
insurer if a renewal of that policy is offered, and a written
notice is provided with that renewal regarding additional
earthquake coverage that is available.
2. Requires written notice of specified coverages to be filed
with the Insurance Commissioner at least 30 days prior to
use, and specify that it may not be used if disapproved by
the Insurance Commissioner for being misleading or
incomplete.
Background
The Insurance Code specifies the minimum earthquake coverage
that must be offered to homeowners when they purchase or renew a
homeowners' insurance policy. Current statute does not mandate
that the homeowner purchase that coverage, or any earthquake
insurance. Statute gives the Insurance Commissioner's 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. 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
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structure their earthquake insurance policy. With the Choice
product, homeowners can choose from a menu of coverage 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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/4/14)
Association of California Insurance Companies
Personal Insurance Federation of California
ARGUMENTS IN SUPPORT : According to the Personal Insurance
Federation of California, this bill provides simple
clarification that if a consumer has purchased the CEA's Choice
product, they will not 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.
ASSEMBLY FLOOR : 75-0, 4/24/14
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Grove, Hagman, Hall, Roger Hern�ndez, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Medina, Melendez, Mullin, Muratsuchi, Nestande, Olsen, Pan,
Patterson, Perea, V. Manuel P�rez, Quirk, Quirk-Silva, Rendon,
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AB 2735
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Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
P�rez
NO VOTE RECORDED: Gray, Harkey, Mansoor, Nazarian, Vacancy
AL:d 8/5/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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