THIRD READING  

Bill No: AB 548

Author: Rodriguez (D), et al.

Amended: 4/4/19 in Assembly

Vote: 21

SENATE INSURANCE COMMITTEE: 13-0, 6/26/19

AYES: Rubio, Jones, Archuleta, Bates, Borgeas, Dodd, Galgiani, Glazer, Hueso, Mitchell, Moorlach, Portantino, Roth

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 76-0, 5/2/19 (Consent) - See last page for vote

SUBJECT: Earthquake Brace and Bolt program

SOURCE: Author

DIGEST:

This bill requires the California Residential Mitigation Program to promote its Earthquake Brace and Bolt mitigation program to low-income homeowners and establish supplemental grants to low-income homeowners for earthquake retrofits.

ANALYSIS:

Existing law:

1. Establishes the California Earthquake Authority (CEA) to provide earthquake insurance on behalf of private insurers who choose to participate.
2. Establishes the California Residential Mitigation Program (CRMP) as a joint powers authority between the CEA and the Office of Emergency Services for the purpose of administering the Earthquake Brace and Bolt mitigation program (Brace and Bolt) that provides grants to eligible homeowners for earthquake retrofits of their home.
   1. Limits eligibility to owner-occupied, single-family dwellings (up to four units) that meet specified structural requirements and are located in high-risk areas.
   2. Limits grants to the lesser of 75% of the cost of the qualifying retrofit work, or $3,000.
3. Establishes the Earthquake Loss Mitigation Fund within the CEA to provide grants or loans to dwelling owners who wish to retrofit their homes and meet eligibility criteria.
   1. Requires the CEA to deposit the lesser of 5% of investment income or $5 million into the Fund.
   2. Provides that the CEA will provide the funds to CRMP for implementation and expansion of the Brace and Bolt program.

This bill:

1. Requires the Brace and Bolt program to:
   1. Provide outreach to low-income households to increase awareness of the program where it is offered.
   2. Set aside at least 10% of funds available each year for the Brace and Bolt to provide supplemental grants to low-income households who are already receiving a primary grant from the program.
      1. Provides that supplemental grants be calculated so that 90% of the retrofit costs are covered by the Brace and Bolt program and are awarded on a first-come-first-served basis until the supplemental grant funds are exhausted.
      2. Requires that unexpended supplemental grant funding be available to provide primary grants to other eligible applicants on that waiting list.
2. Defines low-income household as a household that has an income at or below 80% of the median household income in California.

Background

The devastating 1994 Northridge earthquake killed 57 people and caused over $25 billion in insured losses. The resulting homeowners insurance crisis triggered the creation of the CEA in 1996 as a privately financed and publicly managed entity that offers catastrophic residential earthquake insurance. According to the 2017 Earthquake Premium and Policy Count Data Call published by the California Department of Insurance, about 13% of California residential policyholders purchase earthquake insurance (including mobilehome, condominium, and renters policies), mostly from the CEA.

Insuring homes against earthquake damage is only a partial measure. The fewer homes damaged in a catastrophe, the better able the entire community will be to recover afterward. A seismic retrofit strengthens an existing house, making it more resistant to earthquake damage. Many older homes on raised foundations are especially vulnerable to earthquake damage. In a strong earthquake, the crawl space is vulnerable to collapse, causing the home to slide off its foundation and rendering it uninhabitable. This damage can be prevented relatively easily by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. The CEA estimates there are more than one million homes in high-risk areas that could benefit from this type of retrofit with a potential total cost at approximately $3 billion.

Grants are offered through the Brace and Bolt program to homeowners that meet specified high-priority criteria for earthquake retrofit. A typical retrofit may cost between $3,000 and $7,000 depending on the location and size of the house, contractor fees, and materials and labor. Brace and Bolt provides grants of up to $3,000. CRMP selects communities for Brace and Bolt based on a formula that considers both the seismic hazard and the concentration of homes that are good candidates for retrofits (generally homes built prior to 1940). The highest risk areas are located primarily in the Bay Area in Northern California and the Los Angeles area in Southern California. Applicants are awarded grants through a random selection process and those not receiving a grant are placed on a waitlist.

Although the retrofits may be less expensive than most remodeling projects or home repairs, grants are limited and the remaining costs may still be a burden to lower income homeowners. This bill is designed to help low-income homeowners upgrade their homes by allowing the program to provide supplemental grants to homeowners who would not be able to afford the costs of a retrofit that exceed the standard grant.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 7/8/19)

Allstate Insurance Company

American Red Cross

California Building Industry Association

California Department of Insurance

California Earthquake Authority

Personal Insurance Federation of California

OPPOSITION: (Verified 7/8/19)

None received

ARGUMENTS IN SUPPORT: Allstate Insurance Company explains that the Brace and Bolt program provides financial incentives for homeowners to make seismic upgrades that will make their home safer and more resilient in the event of an earthquake. The program utilizes a lottery system and is only based on geography. But since higher income homeowners can use their own funds to protect their homes, Allstate supports allowing the Brace and Bolt program to consider the income level of the homeowner. This addition will help lower income homeowners protect their homes.

ASSEMBLY FLOOR: 76-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Grayson, Mullin, Quirk

Prepared by: Hugh Slayden / INS. / (916) 651-4110

7/10/19 14:31:17

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SENATE COMMITTEE ON INSURANCE

Senator Susan Rubio, Chair

2019 - 2020 Regular

Bill No: AB 548 Hearing Date: June 26, 2019

SUBJECT: Earthquake Brace and Bolt program.

DIGEST:

Requires the California Residential Mitigation Program to promote its Earthquake Brace and Bolt mitigation program to low-income homeowners

ANALYSIS:

Existing law:

1. Establishes the California Earthquake Authority (CEA) to provide earthquake insurance on behalf of private insurers who choose to participate.
2. Establishes the California Residential Mitigation Program (CRMP) as a joint powers authority between the CEA and the Office of Emergency Services for the purpose of administering the Earthquake Brace and Bolt mitigation program (“Brace and Bolt”) that provides grants to eligible homeowners for earthquake retrofits of their home.
   1. Limits eligibility to owner-occupied, single-family dwellings (up to four units) that meet specified structural requirements and are located in high-risk areas.
   2. Limits grants to the lesser of 75% of the cost of the qualifying retrofit work, or three thousand dollars ($3,000).
3. Establishes the Earthquake Loss Mitigation Fund within the CEA to provide grants or loans to dwelling owners who wish to retrofit their homes and meet eligibility criteria,
   1. Requires the CEA to deposit the lesser of 5% of investment income or $5 million into the fund.
   2. Provides that the CEA will provide the funds to CRMP for implementation and expansion of the Brace and Bolt program.

This bill:

1. Requires the Brace and Bolt program to:
   1. Provide outreach to low-income households to increase awareness of the program where it is offered.
   2. Set aside at least 10% of funds available each year for the Brace and Bolt to provide supplemental grants to low-income households who are already receiving a primary grant from the program.
      1. Provides that supplemental grants be calculated so that 90% of the retrofit costs are covered by the Brace and Bolt program and are awarded on a first-come-first-served basis until the supplemental grant funds are exhausted.
      2. Requires that unexpended supplemental grant funding be available to provide primary grants to other eligible applicants on that waiting list.
2. Defines low-income household as a household that has an income at or below 80% of the median household income in California.

Background

According to the author:

While many homeowners can afford to pay retrofit costs in excess of the $3,000 provided by [Brace and Bolt], the prospect of excessive costs can discourage low-income homeowners from applying and prevent many of those that do from completing the retrofit. Without greater effort to bring low-income homeowners into the program, and increased funding to make retrofits more affordable to them, too many homeowners in low-income areas will go without the opportunity to make their homes safe.

California Earthquake Authority. The devastating 1994 Northridge earthquake killed 57 people and caused over $25 billion in insured losses. The resulting homeowners insurance crisis triggered the creation of the CEA in 1996 as a privately financed and publicly managed entity that offers catastrophic residential earthquake insurance. According to the 2017 Earthquake Premium and Policy Count Data Call published by CDI, about 13% of California residential policyholders purchase earthquake insurance (including mobilehome, condominium, and renters policies). Although private market alternatives are available, the CEA provides most residential earthquake coverage in California.

But insuring these types of catastrophic risk is only a partial measure and likely inadequate. CEA policies offer more limited coverage than standard policies, require deductibles, and are based on standard replacement cost estimates that often prove inadequate when rebuilding costs skyrocket. The 87% of California policyholders without earthquake coverage may get no help at all.

But even fully insured homeowners will likely feel the effects of a major earthquake; a large catastrophe may result in a multitude of consequential effects impacting everyone in the surrounding community. After the recent fires, thousands of displaced homeowners and tenants were forced to look for new places to live and severely aggravated pre-existing housing and traffic-congestion problems, strained local governments suffered significant losses in property tax revenue, and piles of debris began filling up disposal sites. The fewer homes damaged in a catastrophe, the better able the entire community will be able to recover afterward.

Retrofits. A seismic retrofit strengthens an existing house, making it more resistant to earthquake damage. Many older homes on raised foundations are especially vulnerable to earthquake damage. In a strong earthquake, the crawl space is vulnerable to collapse, causing the home to slide off its foundation and rendering it uninhabitable. This damage can be prevented relatively easily by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. The CEA estimates there are more than 1 million homes in high-risk areas that could benefit from this type of retrofit with a potential total cost at approximately $3 billion.

Brace and Bolt. Grants are offered through the Brace and Bolt Program to homeowners that meet specified high-priority criteria for earthquake retrofit. A typical retrofit may cost between $3,000 and $7,000 depending on the location and size of the house, contractor fees, and materials and labor. Brace and Bolt provides grants of up to $3,000. CRMP selects communities for Brace and Bolt based on a formula that considers both the seismic hazard and the concentration of homes that are good candidates for retrofits (generally homes built prior to 1940). The highest risk areas are located primarily in the Bay Area in Northern California and the Los Angeles area in Southern California.

Once a community has been selected for Brace and Bolt, homeowner can apply online during a 30 day window. The application requires homeowners to answer questions to ensure their house is suitable for a retrofit. Applicants are awarded grants through a random selection process, and those not receiving a grant are placed on a waitlist. Once Brace and Bolt is offered in a city, the program stays there in subsequent years.

Although the retrofits may be less expensive than most remodeling projects or home repairs, grants are limited and the remaining costs may still be a burden to lower income homeowners. This bill is designed to help low-income homeowners upgrade their homes by allowing the program to provide supplemental grants to homeowners who would not be able to afford the costs of a retrofit that exceed the standard grant.

According to the Assembly Appropriations Committee, this bill would have a negligible fiscal effect.

Related/Prior Legislation

SB 254 (Hertzberg, 2019) would have made numerous adjustments to the CEA’s claims-paying capacity and redirected savings to the Brace and Bolt Program. Held under submission in the Senate Appropriations Committee.

ARGUMENTS IN SUPPORT:

Insurance Commissioner Ricardo Lara writes about the importance of retrofitting the home, especially in earthquake-prone areas, but notes that a majority of Californians remain financially insecure. People are working harder for less and the rising cost of living is pricing out the middle class. SB 548 would increase outreach to low income householders in communities where the program is offered as well as provide opportunities for an increased grant to those households to complete the retrofit.

Allstate Insurance explains that the Brace and Bolt program provides financial incentives for homeowners to make seismic upgrades that will make their home safer and more resilient in the event of an earthquake. The current program utilizes a lottery system and is only based on geography – whether that zip code is in a high-risk area or not. But since higher income homeowners can use their own funds to protect their homes, Allstate supports allowing the Brace and Bolt program to consider the income level of the homeowner. This addition will help lower income homeowners protect their homes.

The Personal Insurance Federation of California writes that it is imperative to prepare our communities for the risk. Furthermore, a building that incurs less damage after an earthquake has a reduced risk of an electrical fire – a “fire-following” event – which has long been a concern of the insurance industry. It also would result in lower repair costs and reduced deductible expenses, making it easier for Californians to return to their lives after a disaster.

SUPPORT:

Allstate Insurance Company

American Red Cross

California Building Industry Association

California Earthquake Authority

Insurance Commissioner Ricardo Lara

Personal Insurance Federation of California

OPPOSITION:

None received

-- END --

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 548

Author:(Rodriguez) – As Amended Ver:April 4, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the California Residential Mitigation Program (CRMP) to promote its Earthquake Brace and Bolt (EBB) mitigation program to low-income households, to offer supplemental grants to low-income residents, and to set aside a portion of grant funds to low-income applicants.

FISCAL EFFECT:

Negligible.

COMMENTS:

1. Purpose. According to the author, the bill was introduced to promote seismic retrofits in low-income areas.
2. California Earthquake Authority. The CEA was formed through legislation in 1996 to address an insurance-availability crisis that followed the 1994 Northridge earthquake. The CEA is a privately funded, publicly managed not-for-profit organization that provides catastrophic residential earthquake insurance. The governor, state treasurer, and insurance commissioner serve as the CEA’s governing board voting members. The CEA is funded through sales of earthquake policies and investments.
3. Brace + Bolt. The EBB program was created by the California Residential Mitigation Program (CRMP), which is a joint powers authority between the CEA and the Office of Emergency Services. The EBB was developed to help homeowners lessen the potential for damage to their houses during an earthquake. A residential seismic retrofit strengthens an existing house by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. CRMP is funded through a portion of CEA's investment income.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 3, 2019

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 548 (

Author:Rodriguez) – As Introduced Ver:February 13, 2019

SUBJECT: Earthquake Brace and Bolt program

SUMMARY: Requires the California Residential Mitigation Program (CRMP) to promote its Earthquake Brace and Bolt (EBB) mitigation program to low-income homeowners. Specifically, this bill:

1. Defines low-income resident as an individual who makes less than 300% of the federal poverty level.
2. Defines low-income community as a community with a median household income below 80% of the statewide median household income.
3. Requires the EBB program to:
   1. Promote EBB to low-income households and communities.
   2. Offer larger grants to low-income residents.
   3. Give priority to low-income applicants.

EXISTING LAW:

1. Requires an insurer to offer earthquake insurance in conjunction with the sale of a homeowner’s policy.
2. Establishes the California Earthquake Authority (CEA) to provide earthquake insurance on behalf of private insurers who choose to participate in the CEA.
3. Establishes the CRMP as a joint powers authority (JPA) between the CEA and the Office of Emergency Services for the purpose of administering the EBB program.
4. Establishes the EBB program to provide some homeowners with grants to subsidize seismic retrofits to their home.
5. Requires the CEA to deposit 5% of investment income or $5 million (whichever is less) into the Earthquake Loss Mitigation Fund.
6. Provides that the EBB program will be funded by the Earthquake Loss Mitigation Fund.

FISCAL EFFECT: Undetermined

COMMENTS:

1. Purpose. According to the author, the bill was introduced to promote seismic retrofits in low-income areas. While many homeowners can afford to pay retrofit costs in excess of the $3000 provided by EBB, the prospect of those costs can discourage low-income homeowners from applying and prevent many of those that do from completing the retrofit. Without greater effort to bring low-income homeowners into the program, and increased funding to make retrofits more affordable to them, too many homeowners in low-income areas will go without the opportunity to make their homes safe.
2. California Earthquake Authority. The CEA was formed through legislation in 1995 and 1996 to address an insurance-availability crisis that followed the 1994 Northridge earthquake. After that earthquake, many homeowners found it difficult or impossible to find basic homeowner's insurance. Many others were faced with the prospect of having their homeowners' insurance non-renewed as insurance companies tried to shed their exposure to earthquake risk. Because state law requires insurers to offer earthquake insurance to their applicants and holders of residential policies, the insurers’ retreat from the California market resulted in an availability crisis for both homeowners and earthquake insurance. The Department of Insurance reported in the summer of 1996, at the height of the crisis, that 95 percent of the homeowners' insurance market had either stopped, or severely restricted, sales of new homeowners' policies. After the CEA began operations in December 1996, the California homeowners' insurance market recovered quickly. A Department of Insurance report noted that at the peak of the availability crisis, 82 insurers had restricted the sale of new homeowners' insurance policies. By October 1997, only three insurers were restricting the sale of new policies. Since that time, the requirement to offer earthquake insurance has not been a factor in restricting the availability of homeowners' insurance.
3. Retrofits. A residential seismic retrofit strengthens an existing house, making it more resistant to earthquake damage. For many older homes on raised foundations, this can be accomplished relatively easily by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. In a strong earthquake, the crawl space is vulnerable to collapse, causing the home to slide off its foundation and rendering it uninhabitable. Before changes to the California building code adopted in 2013, residential retrofits were incomplete and not based on a uniform best-practice. However, the changes to the building code ensure that these retrofits follow uniform guidelines needed to ensure a quality science-based retrofit. The CEA estimates there are more than 1 million homes in high-risk areas that could benefit from this type of retrofit. The cost to retrofit all of these homes is estimated to be approximately $3 billion.
4. EBB Program. EBB was developed by the CEA to help homeowners reduce the risk of damage to many older homes during an earthquake with a “code-compliant” retrofit. EBB provides grants of up to $3,000 to help homeowners in selected communities pay for retrofits. The average cost of a retrofit is about $5,000. The CRMP selects communities for EBB based on a formula that considers both the seismic hazard and the concentration of homes that are good candidates for EBB retrofits (generally homes built prior to 1940). Each factor is given a 50 percent weighting and ZIP Codes are ranked based on the combination of those two factors. The highest risk areas are located primarily in the Bay Area in Northern California and the Los Angeles area in Southern California.

Once a community has been selected for EBB, homeowner can apply online during a 30 day window. The application requires homeowners answer questions to ensure their house is suitable for a brace and bolt retrofit. Applicants are awarded grants through a random selection process, and those not receiving a grant are placed on a waitlist. Once EBB is offered in a city, the program stays there in subsequent years.

1. Suggested Amendments. The bill as drafted would add considerable administrative burden to the CEA. In addition to the complication of adding income qualifications to the application process, the bill would alter the criteria for selecting communities in which to implement EBB. Data provided by the CEA on the communities selected for EBB to date do not show a pattern of systematic neglect of low-income areas. Approximately 40% of the zip codes chosen have median household income at or below 80% of the statewide median income (and the population of those zip codes is approximately 40% of the population in all EBB communities).

The author may want to consider amending the bill to instead require CEA to engage in affirmative outreach to low-income households in EBB communities and set aside 10% of available EBB funds for supplemental grants to low-income applicants.

REGISTERED SUPPORT / OPPOSITION:

Support

Allstate

California Building Industry Association

Opposition

None received

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086