Senate Standing Committee on Insurance

The Insurance Committee will come to order. Thank you, everyone, for joining us here today. As you see, we are holding our Committee hearing here in the state capitol. I want to ask all Members who are listening or in their rooms to please come to room 113. Room 113. However, we do have a quorum, so I'm happy about that. Madam Secretary, please call the room.

[Roll Call]

So now that we have everyone present. I know we don't have authors. Unfortunately, so very rare we have a quorum without the authors. They're on their way, so we're just gonna take a. A brief pause. They said they're on their way, so we're just going to take a five minute pause.

The Senate Committee will now reconvene. I see we have our author here. Mister Alvarez, please join us. And your witness can also join you in the front. We already opened and established a quorum, so when you're ready, you may proceed. Presenting AB 2996. Thank you so much.

Thank you, Madam Chair and committee members, appreciate the opportunity to present Assembly Bill 2996. I want to thank the staff and yourself for the work.

Madam Chair, on this bill, AB 2996 would authorize the fair plan to request that the IBank issue bonds to enhance the solvency of the fair plan and authorizes the IBank to issue those bonds. This is an issue that's relatively new for me, but a crisis in the entire state.

I think we've all heard the stories from our own constituents on insurance, and I know a lot of you have done a lot of work on that front, so we thank you. Particular concern to me was when I'm focused a lot on housing in our housing crisis, and trying to make sure that we address that.

And in my own backyard in Otay Mesa community that I represent and had the honor of representing now, going on 10 years previously on the City Council, where we actually zoned for a lot of housing development, which is what we want, one of our house builders, our construction company that was trying to build some housing units, ran into a problem when it came to insurance.

And so that is how my interest sort of came together on these two crises that we are trying to address here in the legislature in our state. This in particular issue I was encouraged to see the department of Insurance and the Fair Plan Association announced last year.

As you all know, the $20 million per location versus 20 million per structure approach which is now being taken, which I think will be helpful. And this is certainly a much needed step, but it also puts an already overexposed, as you know, fair plan at a significant financial risk if there's a major fire in California.

And that's where we come in with this bill. Our attempt, our hope is that the market sees this as a tool available to them.

They don't have to use it, but available to them in the situation where we find ourselves in an unfortunate situation and payment has to be made on the obligations that occur as a result of a natural, of a disaster such as a fire, where this tool, again, a tool and option could be utilized essentially to over the course of years, decades really, as opposed to over the course of days, payment has to be made in order to cover those responsibilities that are encumbered upon by the private market, insurance market.

So this does nothing to rates. This is nothing which we know there's work to be done and work that's being done around that.

This is really to add an additional tool to again, hopefully create a little bit more of certainty and an atmosphere, as I think we're all trying to do, of trying to maintain the market, strong insurers to stay in the state and provide an option that still there will be accountability all on the backs of insurers, but through a vehicle, this tool of trying to amortize those costs over multiple years as opposed to a bill that they would get hit with immediately.

So that's what this bill is hoping to do. And I'll turn it over to Dan Dunmoyer from the Building Industry Association, who's my witness on this.

You may proceed when you're ready. Thank you Daniel.

Thank you. Madam Chair and members, good afternoon. Dan Dunmoyer, President and CEO of the California Building Industry Association. I just want to thank Mister Alvarez for his leadership on this issue and just to move and amplify his comment. As he mentioned Otay Mesa, there's a couple thousand condominiums we're trying to build.

This is the most attainable for sale housing in the State of California, about half the price of the average cost of a new home in San Diego. And this is repeated throughout the state. It occurs in the northern part of San Diego, occurs in LA, it occurs in Central Valley, occurs in the East Bay, occurs in Sacramento.

All of our condominiums because of the nature of the coverage needed. It's called commercial insurance instead of residential because you're insuring the entire Association. As the assemblymember said, the fair plan right now doesn't address more than 20 million per location. We're working with the Department to move it to 20 million per building.

And with that expanded exposure, we want to make sure the fair plan can handle a major loss. The analysis says so accurately. The fair plan is up to 336 billion in exposure with 200 million in capacity, which makes it fiscally questionable.

So giving the fair plan this voluntary tool to have as a backstop should a fire ignite that burns down a number of homes that are insured by the fair plan, they have this tool. Two pieces of history here for those of us who've been around a while, not the first time we've done this.

This Committee back in 2002 with assemblymember Juan Vargas, now Congressman Vargas, passed a nearly identical measure that allowed for a backstop financial mechanism for the workers comp system when it ran into bankruptcy after the legislature deregulated the comp market. So this has been tried and tested via the IBank.

The difference between this, as Mister Alvarez noted, is in that case, the consumers policyholders paid a $10 a year surcharge. In this Bill, 100% of the cost of repayment, as well as developing the bonds, is borne solely by the insurance industry. That's the only distinction between the two laws.

Last thing I'll say there were a number of amendments taken on June 20. They addressed the issues that were in the assembly addresses issue raised by Miss Calderon, an issue also raised on clarifying what actually is a financial institution.

We also addressed issues by the California Department of Insurance who had questions about using the right words of solvency versus capacity. We also took care of fair plan concerns on defining both the concept of a bond, but also addressing the issue of a short-term bridge loan or line of credit. And the final thing is technical issues.

We brought in the leading bond counsel for the treasurer and the IBank, and they have been giving us technical advice on how to craft this to maximize the amount of investors who would consider this so they provide a bond at the lowest interest rate. Those are the four changes made since the assembly.

Members, we feel this is a good tool. It's not just us at CBI. If you look at the analysis, there's close to 30 other supporters of this. This works for realtors, apartment owners, but also works for the Farm Bureau. It works for other parties that are have commercial structures, not just us.

So we see this as a solution available solution to the fair plan, and we would urge your support. Thank you, Madam Chair.

Thank you very much for that testimony. So now I will invite anyone in this room that would like to speak in support to. Please come up to the mic.

Madam Chair, Members Carlos Gutierrez here on behalf of the Community Associations Institute, California Legislation Executive Action Committee in support.

Thank you, Madam Chair and members Grace Copland here on behalf of the Personal Insurance Federation of California, in support.

Mark Sektnan with the American Property Casualty Insurance Association, also in support.

Thank you. Anyone else wishing to speak in support, please come up. Okay, so now I would like to invite anyone wishing to speak in opposition to join me. Seeing none, I would like to invite any member of the audience to come up and speak in opposition of this measure. Okay, seeing none. That was fast.

I now invite members of this committee for any questions, comments, or concerns. Okay, I'll turn it over to Senator Dodd.

Yeah, I don't have any criticisms or anything in this bill. I just applaud the author. Bring this forward. This is really a common-sense bill that seems to be proactive. We don't need this, but if we need it, we've got it. And I just think it's a great bill supporting it today. Thank you.

Thank you. Anyone else wishing to speak?

We just echo those same remarks. Appreciate the author and sponsors coming forward with this. Based on information I think some of us have and groups that we're working with were perhaps a major fire or two away from a fair plan insolvency. So I think this is critical and the timing is critical and I'm very supportive.

Thank you. Any other member wishing to speak? Okay. None. I just want to thank you, first of all. Thank you. I know you've been tackling this housing issue and. And we continue to want to move forward with more housing, more stock, and that's essentially going to help us in California bring down costs.

And we are still not quite there because some people can't get insurance. So thank you. And to Mister Alvarez, I know you've worked hard on this and you've taken a lot of amendments and trying to get into a good space. So I just want to say thank you for trying to bring relief to the fair plan.

I know that that's a big concern and this financial mechanism will help. So with that, Madam Secretary, please call the roll. Thank you. Wait, I'm sorry. Do we have a motion? So moved by Senator Alvarado-Gil? Thank you.

File item two, AB 2996, by Assemblymember Alvarez. Motion is do pass to appropriations. [Roll Call]

This measure has a six zero. We need to leave the row open for those that are absent. Thank you very much. And we'll just leave it open. We're waiting for our next author. We don't see him currently here. Is there any member of his staff that wants to present the Bill?

Okay, so we'll take a short five minute recess until we can get the next author here. Thank you.

The Senate insurance Committee will reconvene. Thank you, Assembly Member Connolly, for joining us today. Today we are going to be presenting AB 2416 team by Assemblymember Connolly. And when you're ready, you may proceed. Thank you.

Thank you, Madam Chair and members. Thank you for your patience. I'd like to begin by thanking the Committee staff for their tireless work on this Bill, and I will be accepting the Committee amendments.

Thank you.

I'm proud today to present AB 2416 a Bill that would require the California Department of Insurance to review and consider updates to the safer from wildfire regulations every five years starting on January 1, 2030.

Specifically, CDI, in consultation with CalOES, the Office of Planning Research, and CAL FIRE, would consider if additional building hardening measures and community level wildfire mitigation programs should be included in the Safer From Wildfire program.

This is an issue that is near and dear to communities throughout the state, as you all know, where wildfire risks are high and insurance is increasingly unaffordable and absent.

My district specifically is in a region that has experienced some of the worst wildfires in recent history, and I'm constantly talking to folks who are doing everything they can with their own money to protect their homes and communities from the next disaster.

The Safer From Wildfires program is the only avenue open to consumers to receive direct discounts for hardening their homes and neighborhoods. These insurance discounts are a great incentive and it costs the state nothing to offer it. Right now. There is no requirement for CDI to open up the regulations for evaluation.

As new and safer building materials come to market and wildfire prevention methods evolve, it is important that we periodically revisit the regulations and evaluate if they capture the best mitigation practices available and if the regulations are offering as much relief as possible to the people who are doing the right thing.

We have made significant amendments to the Bill, to address the concerns of the industry, including a three year delay from the original proposal to allow for ongoing efforts to shore up the insurance market to finish and force CDI to clear its current approval backlog. In fact, in the previous version of this Bill, we were specifically calling out the insurance industry as stakeholders that CDI must consult with when reviewing the regulations.

We have also worked to ensure that there is no Prop 103 issue with this Bill. Again, all this Bill does is require CDI to periodically consider whether or not these regulations need to be updated to reflect the future needs of consumers and the industry. The final say, as always, will be left with the insurance Commissioner.

So to wrap up while CDI works on other strategies to improve the insurance market in California, AB 2416 is a reasonable step that Legislature can take to help consumers save money on their insurance bills and reduce the risk of disaster for vulnerable communities and the families that live there.

With me to testify this afternoon is Melanie Law with the North American Insulation Manufacturers Association and Joel Laucher with United Policyholders.

Thank you. You can come to the front, your main witness, and you may proceed when you're ready. Thank you for joining us today.

Good afternoon Chair and Committee Members. My name is Melanie Law on behalf of the North American Insulation Manufacturers Association in support of AB 2416. NAIMA is the trade Association for North American Manufacturers of fiberglass, stonewool and slag wool insulation products.

As part of our role, we support policies that promote passive fire protection, strategies in wildlife urban interface areas to help reduce fire spread severity and loss of life and property. AB 2416 would require by 2030 Department of Insurance to evaluate whether to update the safer from wildfire regulations and require subsequent reviews of the regulation every five years.

As part of these ongoing reviews, the Department of Insurance would determine if additional building hardening measures and community level wildlife mitigation programs would be adopted to further incentivize California consumers to adopt home hardening measures that will reduce their wildfire risk. The first evaluation will take place six years from now.

As part of the Department of Insurance first evaluation, they are required to consider integrating fire safe building materials, such as those of the state fire marshals. Building material listing these fire safe building materials on the BML have all been tested and certified by the state fire marshal and accredited laboratories for their fire safety performance.

We support the authors efforts to encourage Department of Insurance to add fire protection building materials to the safer from wildfire regulations. This will help accelerate the adoption of BMLI BMN certified building materials in wildfire prone areas.

Reviewing the safer from wildfire regulations every five years will give consumers, fire service professionals, and insurance providers an opportunity to examine the effectiveness of the regulations and make necessary changes that will further the intent of the regulations, which is to incentivize consumers to reduce their wildfire risk.

For these reasons, we encourage your support and respectfully ask for an aye vote. Thank you.

Thank you. Now I will invite any member of the audience to come and speak in support of this measurement. Oh, you have one more witness in support. Oh, I'm so sorry. Yes, please join us. My apologies. I thought he might be opposing the Bill, so I was going to go to that next.

Good afternoon, Chair and Members of the Insurance Committee. Thank you for having considering this Bill. My name is Joel Laucher. I am here representing United policyholders, which is a nonprofit that works to benefit insurance consumers in California and around the country.

I want, I'm here to say, to support this Bill, and I'm going to read my talking points because our more polished representative isn't here today but that doesn't diminish our sincerity in our support for this Bill. The Safer from Wildfires program is a critical initiative aimed at reducing fire risk in California.

The program has contributed already significantly to educating consumers on effective measures they can take to protect their properties. Despite these successes, there are ongoing challenges that need to be addressed.

Reviewing the safer from wildfires program will allow us to identify areas where improvements can be made, and it is our understanding that as wildfire risk evolves, it is essential that our programs and policies keep pace. The review process will allow us to incorporate new materials, techniques, and approaches that have proven to be effective in reducing wildfire risk.

Reviewing the Safer From Wildfires program is a crucial step in our ongoing efforts to enhance wildfire resilience in California. And by continuously improving and updating our wildfire risk reduction strategies, we can better protect our communities and ensure fair insurer pricing for homeowners who invest in making their property safer.

I will add that there are very few mandatory discounts in any property casualty coverage in California. The safer from wildfire discounts are an important set. They're meant to incentivize people to do the right thing and, of course, reward them for a discount.

We want those discounts to be targeted at the right mitigations that are going to be the most meaningful and helpful to consumers. And like any study of science, it's not a one and done.

You know, there's considerable thought put into the current mitigations, but I think further review will only prosper by making us more aware of the most effective mitigations available. So I thank you for your time and consideration.

Thank you for that. Thank you, Joe. Is there anyone in this room wishing to speak on in support of this measure, please come up to the mic. Thank you.

Ethan Nagler on behalf of the City of Santa Rosa, in support.

Thank you.

Clifton Wilson on behalf of the Marin County Board of Supervisors, in support. Thank you.

Thank you. Anyone wishing to speak in support? Seeing none, we're now going to move over to anyone wishing to present an opposition.

Shari McHugh, representing the Pacific Association of Domestic Insurance Companies. We are pleased to remove our opposition thanks to the amendments that the author has agreed to accept. Thank you. Thank you.

Mark Sektan, with the American Property Casual Insurance Association, we're also removing our opposition due to good work with the Committee and staff and will continue to work with the Department of Insurance on ensuring that the mitigation standards they have are complete and terribly effective. Thank you.

Thank you.

Grace Koplin here on behalf of the Personal Insurance Federation of California, also withdrawing our opposition. Thank you to the chair and author. For taking the amendments.

Thank you, Marjorie Lee on behalf of the American Wood Council, I've also been asked to speak on behalf of the Western Wood Preservers Institute. Thankful to the chair and the author for working with us. And we'll be removing our opposition. Thank you.

Okay, anybody else wishing to speak in support or opposition? Okay, now I'll move over to the Members. Anyone wishing to make comments? I'll move it over to Senator Dodd.

Yeah. I appreciate this Bill from the context that hopefully, you know, in six years that the insurance company will have a rate base on which they can actually discount to customers that do the work. I mean, obviously, I've said this before in Committee hearings. This is something.

But, you know, right now with what's going on, it's everything we could do just to make sure that insurance is written here. So I look forward to having this be an effective measure that will actually help consumers down the line.

Thank you. Any other Member wishing to speak, you may proceed.

Thank you, Madam Chair, has the Department indicated they are opposed to doing this or are not going to do this? Otherwise.

They have not expressed opposition to the Bill.

What about the practice? Have they indicated to you, in other words, you're bringing this Bill forward because you think the department's not going to do it?

Well, they're committed, I know, to the Safer From Wildfires program. So this is putting some parameters about how we can approach that in the future. So we have been obviously in communication with them as we move forward with this.

Anyone else wishing to speak? Any other member? Okay, thank you very much. And first of all, let me just, you know, say how thankful I am. I know we spent so many days and hours talking about this Bill, and I think, you know, my comments go to, I think, where the great Senator was headed towards.

I want to just make sure that everyone understands that the insurance Commissioner still has the ability to oversee this at any time. Right. That's his authority. So he will, or she will continue to have the authority to do as they desire. But anyhow, I really want to thank you. We did streamline it a little.

We brought it down to five. And I think, again, the insurance Commissioner has the ability to do so anyways. But at least if we put five years in place, at least we know that every. Technically, every insurance Commissioner during their tenure has the ability to. To review and enforce.

So I wanted to add one more thing on this particular issue. And so when we talked about this, the reason it was important for me to wait, because I know that the Insurance Commissioner has been working on it.

I know that based on some of the work that we did last year, we put so much work into trying to figure out a system where we all work together.

And I did not want him to feel that his work or all our collective work, consumer watchdogs, industry, and everyone that worked on last year that our work didn't matter. But at this way, it gives the insurance Commissioner time to work on those procedures.

It gives us a couple of years to reconvene, engage stakeholders, and then figure out if there's something missing. I also appreciate that things change in terms of mitigation, and hopefully we're able to review mitigation standards in the future to ensure that we're doing what we can for consumers. And I think this is a good middle ground.

Thank you. It's been a long, hard road to get to where we're at, and thank you to the insurers who now gone to neutral. So with that, I'm going to ask Madam Secretary to call the rule. Anybody willing to make a motion here move by Senator Cortese. Thank you.

File item one, AB 2416 by Assembly Member Connolly. Motion is do pass as amended to appropriations. [Roll Call]. Five to zero.

Okay, we have a 5-0. Thank you, Mister Connolly. We're waiting for one more Member, so we'll keep this open for our Senator Caballero to attend. So thank you so much for everyone in the audience. We're going to have to take another pause until we have a full body here.

And so, Miss Caballero and her staff, if you are hearing us today, please come and join us as soon as you can. Thank you, everyone. The Senate insurance Committee will reconvene. We are going to go over two Bills AB 2416 by Connolly and AB 2996. We're going to begin with AB 2416 by Assemblymember Connolly, motioned by Cortese. It's at 5- 0. Madam Secretary, please call the roll.

[Roll Call]

That Bill is out 6-0. We will now move over to AB 2996 by Assemblymember Alvarez. Alvarado-Gil made the motion. We're at 6-0, Madam Secretary. Please call the roll.

[Roll Call]

And that Bill is out 7-0. Thank you, everyone that's watching and that joined us here today in the committee hearing. This meeting is adjourned.