BILL ANALYSIS �
SB 1205
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
SB 1205 (Monning) - As Amended: April 3, 2014
SENATE VOTE : 36-0
SUBJECT : Continuing education: Commercial earthquake insurance
SUMMARY : Requires the California Department of Insurance (DOI)
curriculum board to develop or recommend a course of study on
commercial earthquake risk management, including courses
relating to understanding risk zones, options for insurance
coverage to cover potential loss, mitigation strategies, and
post-event recovery to ensure that insurance agents and brokers
have access to training on commercial earthquake insurance and
mitigation.
EXISTING LAW :
1)Establishes a curriculum board, appointed by the Insurance
Commissioner (IC), consisting of representatives of insurance
agents, brokers, and life agents, representatives of insurance
companies, consumer groups, bail agents, and insurance adjusters
to develop pre-licensing and continuing education curriculum,
including a list of pre-approved courses of study.
2)Specifically requires the curriculum board to develop courses of
study for long-term care insurance, Medicare supplement policies,
disability insurance products, business management practices, and
ethics.
3)Requires the curriculum developed and the courses of study
approved by the board to be submitted to the IC for final
approval.
4)Requires the DOI to adopt regulations setting standards for the
training of insurance adjusters in evaluating damage caused by
earthquakes, and requires insurers to train and accredit adjusters
in accordance with those standards.
FISCAL EFFECT : This bill was referred to the Senate Floor by
the Senate Appropriations Committee pursuant to Senate Rule
28.8.
SB 1205
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COMMENTS :
1)Purpose of the bill . According to the author, there has been
little attention paid to commercial earthquake insurance,
despite the threat underinsured or uninsured businesses pose
to the economy following a major earthquake. It is wrong to
assume that all businesses, and particularly small businesses,
understand their risks, and many may not know that their
business policy does not cover the peril of earthquake. The
first step to ensuring that agents and brokers discuss the
importance of earthquake insurance is for them to have a
better understanding of the issues. This legislation will
ensure agents and brokers have access to approved training to
fully understand and assist their clients in managing their
earthquake risk.
2)Background . The Senate Committee on Insurance held an
informational hearing on March 26, 2014 looking at the risks a
major earthquake poses to California businesses and the
economy. According to the Senate Committee, a major earthquake
in the San Francisco Bay Area or in southern California could
have an even greater impact on businesses, employees, and
payrolls in the area than Hurricane Katrina had in Louisiana
and Mississippi. However, according to data from the DOI, only
about 8.3 percent of California businesses have earthquake
insurance.
Unlike in the homeowners' market, there is no mandate to offer
commercial earthquake insurance in the state, and no
requirement for agents and brokers to actually discuss
earthquake insurance with their commercial clients.
The magnitude 6.7 Northridge earthquake in 1994 was the
costliest natural disaster in the history of California. It
caused over $25 billion in damage, and $49 billion in economic
losses to the region and state. At least 50% of small
businesses that were adversely impacted by that temblor were
still not open nine months after the disaster. As a result of
the significant damage from that earthquake, the homeowners'
insurance market was thrown into turmoil. In order to return
stability to the homeowners' insurance market, the California
Earthquake Authority was created by the Legislature. No such
mechanism was created for California's businesses.
SB 1205
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Japan's March 11, 2011, earthquake and the tsunamis it
generated made the event the most expensive earthquake on
record, with economic losses of $210 billion, only $35 billion
of which was insured. That earthquake increased awareness of
the economic challenges of recovery.
If left inadequately prepared, disasters of similar severity
paired with our low level of insured risk pose serious
challenges to California's economy. The impact and damage to
commercial operations is very different, and more complex,
than in the residential market. The California Earthquake
Authority offers agent continuing education training on
residential earthquake insurance issues, but there is no
similar program for commercial earthquake risk. The bill's
continuing education goals are intended to ensure that
insurance professionals have the knowledge base to adequately
counsel business policyholders of these complexities.
REGISTERED SUPPORT / OPPOSITION :
Support
National Association of Insurance and Financial Advisors,
California
Independent Insurance Agents and Brokers of California
Opposition
None received
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086