SB 336: Earthquake insurance: rates.
- Session Year: 2015-2016
- House: Senate
- Latest Version Date: 2015-02-23
Existing law establishes the California Earthquake Authority and authorizes the authority to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance. Existing law requires that the rates established by the authority be actuarially sound so as to not be excessive, inadequate, or unfairly discriminatory. Existing law provides that policyholders who have retrofitted their homes to withstand earthquake shake damage according to standards and to the extent set by the governing board of the authority shall enjoy a premium discount or credit of 5 percent on the authority-issued policy of residential earthquake coverage. Existing law authorizes the board to approve a premium discount or credit above 5 percent if the discount or credit is determined by the authority to be actuarially sound.
This bill would instead provide that those policyholders shall enjoy a premium discount or credit of at least 5 percent on the authority-issued policy of residential earthquake coverage. The bill would also make nonsubstantive, technical changes.
(a)Rates established by the authority shall be actuarially sound so as to not be excessive, inadequate, or unfairly discriminatory. Rates shall be established based on the best available scientific information for assessing the risk of earthquake frequency, severity, and loss. Rates shall be equivalent for equivalent risks. Factors the board shall consider in adopting rates include, but are not limited to, the following:
(1)Location of the insured property and its proximity to earthquake faults and to other geological factors that affect the risk of earthquake or damage from earthquake.
(2)The soil type on which the insured dwelling is built.
(3)Construction type and features of the insured dwelling.
(4)Age of the insured dwelling.
(5)The presence of earthquake hazard reduction factors, including those set forth in subdivision (a) of Section 10089.2.
(b)(1)If scientific information from geologists, seismologists, or similar experts that assesses the frequency or severity of risk of earthquake is considered in setting rates or in arriving at the modeling assumptions upon which those rates are based, the information may be used to establish differentials among risks only if the information, assumptions, and methodology used are consistent with the available geophysical data and the state of the art of scientific knowledge within the scientific community.
(2)Scientific information from geologists, seismologists, or similar experts shall not be conclusive to support the establishment of different rates between the most populous rating territories in the northern and southern regions of the state unless that information, as analyzed by experts such as the United States Geological Survey, the California Division of Mines and Geology, Geological Survey, and experts in the scientific or academic community, clearly shows a higher risk of earthquake frequency, severity, or loss between those most populous rating territories to support those differences.
(3)It is not the intent of the Legislature in adopting this subdivision to mandate a uniform statewide flat rate for California Earthquake Authority policies.
(c)The classification system established by the board shall not be adjusted or tempered in any way to provide rates lower than are justified for classifications that present a high risk of loss or higher than are justified for classifications that present a low risk of loss.
(d)Policyholders who have retrofitted their homes to withstand earthquake shake damage according to standards and to the extent set by the board shall enjoy a premium discount or credit of at least 5 percent on the authority-issued policy of residential earthquake coverage. For residential dwellings, the 5-percent discount shall be applicable if the dwelling, at a minimum, meets the following requirements: the dwelling was built prior to 1979, is tied to the foundation, has cripple walls braced with plywood or its equivalent, and the water heater is secured to the building frame. For mobilehomes, the 5-percent discount shall be applicable if the mobilehome, at a minimum, is reinforced by an earthquake resistant bracing system certified by the Department of Housing and Community Development. The board may approve a premium discount or credit above 5 percent, as long as percent if the discount or credit is determined by the authority to be actuarially sound by the authority. sound.
(e)All rates shall be approved by the commissioner prior to their use.
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Date
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Status
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|---|---|
| Feb 23, 2015 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
| Feb 24, 2015 | From printer. May be acted upon on or after March 26. |
| Mar 5, 2015 | Referred to Com. on INS. |
| Mar 27, 2015 | Set for hearing April 22. |
| Apr 22, 2015 | From committee: Do pass. Ordered to consent calendar. (Ayes 7. Noes 0. Page 727.) (April 22). |
| Apr 23, 2015 | Read second time. Ordered to consent calendar. |
| Apr 30, 2015 | In Assembly. Read first time. Held at Desk. |
| Apr 30, 2015 | Read third time. Passed. (Ayes 34. Noes 0. Page 843.) Ordered to the Assembly. |
| Apr 30, 2015 | Read third time. Passed. (Ayes 34. Noes 0.) Ordered to the Assembly. |
| May 14, 2015 | Referred to Com. on INS. |
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Date
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Description
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Location
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Votes
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| Apr 30, 2015 | Consent Calendar 2nd SB336 Roth | Senate Floor |
Passed |
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| Apr 22, 2015 | Do pass and be ordered to the Consent Calendar | Senate Standing Committee on Insurance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
SB 336
Page 3
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Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
CONSENT
Bill No: SB 336
Introduced: 2/23/15
SENATE INSURANCE COMMITTEE: 7-0, 4/22/15
AYES: Roth, Gaines, Berryhill, Hernandez, Liu, Mitchell, Wieckowski
NO VOTE RECORDED: Hall
SUBJECT: Earthquake insurance: rates
DIGEST: This bill recasts the premium discount or credit for seismic retrofitting on California Earthquake Authority (CEA) policies to require that the discount or credit be at least 5%.
Existing law:
Establishes the CEA, a privately financed, publicly managed entity to sell only earthquake insurance.
Requires rates charged by the CEA to be actuarially sound so as not to be excessive, inadequate or unfairly discriminatory.
Establishes factors to be included in rates, including, but not limited to the location of the insured property and its proximity to earthquake faults, the soil type on which the dwelling is built, the construction type and features of the dwelling, the age of the dwelling, and the presence of earthquake hazard reduction factors.
Provides that CEA policyholders who have retrofitted their homes to withstand earthquake shake damage according to standards set by the CEA are entitled to a 5% premium discount or credit.
Allows the CEA Board to approve a premium discount or credit above 5% as long as it is actuarially sound.
This bill recasts the premium discount for seismic retrofitting on CEA policies to require that the discount or credit be at least 5%.
Background
According to data from the California Department of Insurance, fewer than11% of homeowners in California purchase earthquake insurance. The CEA currently writes about 73% of all residential earthquake insurance policies in the state.
Earthquake insurance must be offered to all homeowners who purchase homeowners’ insurance but there is no requirement for the homeowner to purchase it. Part of the reason for the low take-up rate for earthquake insurance is its cost and high deductibles. Providing discounted insurance to homeowners who retrofit their homes is fiscally sound, may incentivize homeowners to purchase earthquake insurance, and reduces the future impact of a major earthquake.
Existing law provides that CEA policyholders who have retrofitted their homes according to standards established by the CEA shall get a premium discount or credit of 5%. The CEA Board may approve a premium or discount above 5% as long as the discount or credit is determined to be actuarially sound. The CEA has undertaken research to determine the actuarial impact of retrofitting, and should offer the largest discounts available that remain actuarially sound.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No
Community Associations Institute
OPPOSITION: (Verified 4/22/15)
None received
ARGUMENTS IN SUPPORT: According to the author, everything possible should be done to encourage homeowners to both retrofit their homes and protect themselves against a major earthquake by purchasing earthquake insurance. Those who do choose to reduce future damage by retrofitting their homes should get the full benefit of the reduction in risk to their homes through lower earthquake insurance premiums.
Prepared by: Erin Ryan / INS. / (916) 651-4110
4/24/15 15:45:05
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SB 336 (Roth) Page 3 of 3
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 336 Hearing Date: April 22, 2015
Author: |
Roth |
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Version: |
February 23, 2015 |
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Urgency: |
No |
Fiscal: |
No |
Consultant: |
Erin Ryan |
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Subject: Earthquake insurance: rates
SUMMARY
Recasts the premium discount or credit for seismic retrofitting on California Earthquake Authority (CEA) policies to require that the discount or credit be at least 5%.
DIGEST
Existing law
Establishes the California Earthquake Authority, a privately financed, publicly managed entity to sell only earthquake insurance;
Requires rates charged by the CEA to be actuarially sound so as not to be excessive, inadequate or unfairly discriminatory;
Establishes factors to be included in rates, including, but not limited to the location of the insured property and its proximity to earthquake faults, the soil type on which the dwelling is built, the construction type and features of the dwelling, the age of the dwelling, and the presence of earthquake hazard reduction factors;
Provides that CEA policyholders who have retrofitted their homes to withstand earthquake shake damage according to standards set by the CEA are entitled to a 5% premium discount or credit;
Allows the CEA board to approve a premium discount or credit above 5% as long as it is actuarially sound.
This bill
Recasts the premium discount for seismic retrofitting on CEA policies to require that the discount or credit be at least 5%.
COMMENTS
Purpose of the bill To clarify the statute so that premium discounts for seismic retrofitting match the reduction in risk of homes that have been seismically retrofitted to established standards.
Background According to data from the California Department of Insurance, fewer than11% of homeowners in California purchase earthquake insurance. The CEA currently writes about 73% of all residential earthquake insurance policies in the state.
Earthquake insurance must be offered to all homeowners who purchase homeowners’ insurance but there is no requirement for the homeowner to purchase it. Part of the reason for the low take-up rate for earthquake insurance is its cost and high deductibles. Providing discounted insurance to homeowners who retrofit their homes is fiscally sound, may incentivize homeowners to purchase earthquake insurance, and reduces the future impact of a major earthquake.
Existing law provides that CEA policyholders who have
retrofitted their homes according to standards established by the CEA
shall get a premium discount or credit of 5%. The board may approve
a premium or discount above 5% as long as the discount or credit is
determined to be actuarially sound. The CEA has undertaken research
to determine the actuarial impact of retrofitting, and should offer
the largest discounts available that remain actuarially sound.
Support According to the author, everything possible should be done to encourage homeowners to both retrofit their homes and protect themselves against a major earthquake by purchasing earthquake insurance. Those who do choose to reduce future damage by retrofitting their homes should get the full benefit of the reduction in risk to their homes through lower earthquake insurance premiums.
Opposition None received.
Prior and Related Legislation SB 602 (Monning) allows the CEA to create a new voluntary financing tool for homeowners to mitigate and retrofit their homes against earthquake damage.
POSITIONS
Support
Community Associations Institute
Oppose
None received
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Bill Author
Bill Co-Author(s):