Senate Joint Resolution No. 28

Introduced by Senator Monning

May 28, 2014

Senate Joint Resolution No. 28—Relative to earthquake insurance.

LEGISLATIVE COUNSEL’S DIGEST

SJR 28, as introduced, Monning. Earthquake insurance: affordability.

This measure would memorialize the President of the United States and the Congress of the United States to enact the Earthquake Insurance Affordability Act.

Fiscal committee: no.

WHEREAS, The magnitude 6.7 Northridge Earthquake in 1994
was the costliest natural disaster in the history of the State of
California to date, with more than $25 billion in property damage,
and $49 billion in economic losses to the region and the state; and

WHEREAS, A major earthquake in the San Francisco Bay area
or in southern California could have an even greater impact than
Hurricane Katrina had in Louisiana and Mississippi; and

WHEREAS, Risk Management Solutions, Inc., estimated the
potential cost of a repeat of the 1906 San Francisco earthquake at
$260 billion, and a magnitude 7.0 earthquake rupturing the southern
and northern Hayward Fault between $210 and $235 billion; and

WHEREAS, The seven southern California counties that would
be most affected by an earthquake on the southern San Andreas
Fault are home to 621,000 businesses, 6.3 million employees, and
an annual payroll of $303.3 billion; and

WHEREAS, A magnitude 7.8 southern California earthquake
modeled by the United States Geological Survey and the Southern
California Earthquake Center at the University of Southern
California in 2008 found that such an earthquake could cause more
than $213 billion in damage, and affect roughly 1 out of every 15
workers in the United States, and that the nationwide toll on
unemployment and lost productivity could be severe; and

WHEREAS, Risks from flood and earthquake are generally not
included in homeowners’ insurance and must be purchased
separately, but few homeowners purchase earthquake insurance
for many reasons, including its high cost; and

WHEREAS, The National Flood Insurance Program makes
federally backed flood insurance available to homeowners, renters,
and business owners in exchange for state and community
floodplain management regulations that reduce future flood
damages; and

WHEREAS, Unlike flood insurance, there is no requirement at
the federal or state level to obtain earthquake insurance for
purposes of securing financing for real property located in high
risk areas, leaving the mortgage industry, including Fannie Mae
and Freddie Mac, effectively the insurer of last resort; and

WHEREAS, Under current federal law, earthquake insurance
premiums that are collected and not used for claims arising within
the year of collection are taxed and there is no ability to reserve
profits or accumulate capital for future losses, leading to the need
for higher premiums; and

WHEREAS, California Senators Dianne Feinstein and Barbara
Boxer have introduced the Earthquake Insurance Affordability
Act (EIAA) that would authorize a federal guarantee of limited
postearthquake borrowing by actuarially sound state residential
earthquake insurance programs; and

WHEREAS, The EIAA would lower the cost of earthquake
insurance for homeowners who buy coverage from nonprofit, state
earthquake insurance programs and direct funding to effective
seismic-mitigation measures; and

WHEREAS, The EIAA would allow the California Earthquake
Authority to sell postevent bonds in the private capital market,
reducing the need to purchase reinsurance preevent and resulting
in rate reductions and lower deductibles; and

WHEREAS, With more Californians insured, postevent disaster
assistance would cost less to both the state and the federal
government, and communities could recover more quickly; and

WHEREAS, A Congressional Budget Office analysis of a similar
bill introduced in 2007 estimated that the cost to the federal
government for loan guarantees and postdisaster loans would be
negligible; now, therefore, be it

Resolved by the Senate and the Assembly of the State of
California, jointly, That the Legislature memorializes the President
and the Congress of the United States to enact the Earthquake
Insurance Affordability Act; and be it further

Resolved, That the Secretary of the Senate transmit copies of
this resolution to the President and Vice President of the United
States, to the Speaker of the House of Representatives, to the
Majority Leader of the Senate, to each Senator and Representative
from California in the Congress of the United States, and to the
author for appropriate distribution.