CC SR 20200707 N - AB 2167 & SB 292 Oppostion Letter
RANCHO PALOS VERDES CITY COUNCIL MEETING DATE: 07/07/2020
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to authorize the Mayor to sign letters in opposition to
AB 2167 and SB 292.
RECOMMENDED COUNCIL ACTION:
(1) Authorize the Mayor to sign letters in opposition to AB 2167 and SB 292 as it
relates to potential fire insurance premium increases in high-risk areas.
FISCAL IMPACT: None
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Megan Barnes, Senior Administrative Analyst
REVIEWED BY: Karina Bañales, Deputy City Manager
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Draft letter in opposition to AB 2167 (page A-1)
B. Text of AB 2167 (as amended May 4, 2020) (page B-1)
C. Draft letter in opposition to SB 292 (page C-1)
D. Text of SB 292 (as amended May 4, 2020) (page D-1)
E. June 2020 Sacramento Bee article on AB 2167/SB 292 (page E-1)
F. Letter from Consumer Watchdog opposing AB 2167 (page F-1)
G. Letter from Insurance Commissioner Ricardo Lara opposing AB 2167
(page G-1)
BACKGROUND AND DISCUSSION:
In the wake of destructive fire seasons, homeowners in areas of California that are at
high risk for wildfires have reported losing their homeowners’ insurance or seeing their
premiums skyrocket. Many have been left to seek expensive, limited coverage through
the California FAIR Plan as a last resort.
1
According to the California Department of Insurance, insurer-initiated homeowner policy
non-renewals in State Responsibility Areas (areas where Cal Fire provides fire
protection) grew by 6% from 2017 to 2018, with zip codes affected by devastating 2015
and 2017 fires seeing a 10% increase in non-renewals.
In response to this trend, in December 2019, the Department of Insurance announced a
one-year moratorium barring insurers from dropping the policies of about 1 million
homeowners in Northern and Southern California in areas that were ravaged by
wildfires that year. Although insurers are already prohibited from dropping the policies of
consumers who suffer a total loss in a wildfire, the moratorium extended the ban to
those who live near a declared wildfire emergency and did not lose their home.
California Insurance Commissioner Ricardo Lara also called on insurers to voluntarily
cease all non-renewals related to wildfire risk statewide until December 5, 2020.
AB 2167 and SB 292
In response to insurers pulling out of high-risk markets, earlier this year, legislation was
introduced in the State Assembly and the State Senate to incentivize them to resume
writing policies in these areas in exchange for fast-tracked approval of rate requests.
Assembly Bill No. 2167, introduced by Assemblymember Tom Daly of Anaheim, would
allow for expedited review of rate requests in communities experiencing the greatest
difficulty getting and keeping their insurance. Insurers would be able to seek fast-
tracked approval for rate flexibility if the insurer commits to issuing or renewing more
homeowners’ policies in high-risk counties. The bill creates a mechanism called an
“insurance market action plan” (or IMAP) that insurers would file for approval by the
Insurance Commissioner, obligating the insurer to issue or renew more policies in these
areas. The IMAP would specify the combination of rate relief and underwriting criteria
required to support a mandate for the insurer to issue or renew more policies in high-
risk counties. Senate Bill No. 292, a companion bill introduced by Senator Susan Rubio
of Baldwin Park, would establish formulas to determine which counties are eligible for
these plans.
AB 2167 is now in the State Senate, and SB 292 is in the State Assembly.
The legislation is opposed by consumer advocacy groups and Insurance Commissioner
Lara, who note that it would enable insurers to dramatically raise rates on homeowners
in high-risk areas and circumvent processes established by Proposition 103 that were
designed protect consumers (Attachments F and G). Passed by voters in 1988,
Proposition 103 requires Department of Insurance approval before insurance
companies can implement property and casualty insurance rates.
Commissioner Lara has questioned the need for the AB 2167 and warned that it “would
severely harm consumers by attempting to amend and circumvent a well-established
rate approval process that is reasonably fair, inclusive, and transparent for all parties
involved.”
2
Although Rancho Palos Verdes has not experienced a major wildfire in more than a
decade, last year, the City began receiving anecdotal reports of residents losing their
insurance, or seeing their premiums increase due to the City’s vulnerability to fires. This
issue was explored in a September 2019 staff report.
Given the City’s high risk for wildfires, and the red flags raised by consumer advocacy
groups and the Insurance Commissioner, Staff recommends the City Council authorize
the Mayor to sign letters, as drafted or with revisions, opposing AB 2167 and SB 292.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action is available for
the City Council’s consideration:
1. Do not authorize the Mayor to sign the letters.
2. Take other action as deemed appropriate by the City Council.
3
July 7, 2020 Via Email
The Honorable Tom Daly
California State Assembly
State Capitol, Rm. 3120
Sacramento, CA 95814
SUBJECT: Notice of Opposition to AB 2167
Dear Assemblymember Daly:
The City of Rancho Palos Verdes opposes AB 2167, which would allow insurers to
dramatically increase rates on homeowners and circumvent long-standing processes
and consumer protections.
Rancho Palos Verdes is the most populated city with 90% or more of residents living in
a Cal Fire-designated Very High Fire Hazard Severity Zone. Although there has not
been a major wildfire on the Palos Verdes Peninsula in more than a decade, some
residents have reported losing their insurance or seeing their premiums skyrocket due
to the City’s vulnerability to fires.
We echo the concerns with this legislation raised by consumer advocacy groups and
Insurance Commissioner Ricardo Lara. Passing this bill would only do more harm to
vulnerable homeowners at a time when California’s fire se asons are worsening in length
and severity. We also note that the bill received little attention during states of
emergency due to the COVID-19 pandemic and civil unrest. Legislation with such
significant implications for your constituents deserves more scrutiny and public debate.
For these reasons, the City of Rancho Palos Verdes opposes AB 2167.
Sincerely,
John Cruikshank
Mayor
A-1
cc: Senator Toni Atkins, Chair, Senate Rules Committee
Ben Allen, Senator, 26th State Senate District
Al Muratsuchi, Assembly Member, 66th Assembly District
Jeff Kiernan, League of California Cities
Meg Desmond, League of California Cities
Marcel Rodarte, California Contract Cities Association
Rancho Palos Verdes City Council
Ara Mihranian, Interim City Manager
Kit Fox, Interim Deputy City Manager
A-2
AMENDED IN ASSEMBLY MAY 4, 2020
california legislature—2019–20 regular session
ASSEMBLY BILL No. 2167
Introduced by Assembly Members Daly and Cooley
(Principal coauthor: Senator Rubio)
(Coauthors: Assembly Members Chen, Megan Dahle, Kamlager,
Mayes, Medina, and Waldron)
(Coauthors: Senators Dahle and Jones)
February 11, 2020
An act to add Chapter 12 (commencing with Section 10109) to Part
1 of Division 2 of the Insurance Code, relating to insurance.
legislative counsel’s digest
AB 2167, as amended, Daly. Insurance market action plan.
The Insurance Rate Reduction and Reform Act of 1988, an initiative
measure enacted by Proposition 103, as approved by the voters at the
November 8, 1988, statewide general election, prohibits specified
insurance rates from being approved or remaining in effect that are
excessive, inadequate, unfairly discriminatory, or otherwise in violation
of the act. The act requires an insurer that wishes to change a rate to
file a complete rate application with the Insurance Commissioner and
deems the application approved 60 days after public notice of the
application unless certain events occur, including that a consumer
requests a hearing, or the commissioner determines to hold a hearing.
The act requires hearings to be conducted pursuant to specified
provisions of law governing administrative hearings. Existing law
authorizes the provisions of Proposition 103 to be amended by a statute
that furthers the purposes of the act and is enacted by the Legislature
with a 2⁄3 vote.
98 B-1
Under existing law, the California FAIR Plan Association is a joint
reinsurance association in which all insurers licensed to write basic
property insurance participate in administering a program for the
equitable apportionment of basic property insurance for persons who
are unable to obtain that coverage through normal channels.
This bill would establish the Insurance Market Action Plan (IMAP)
program under which residential property insurance policies in a county
may qualify for IMAP protection if residential property insurance
policies issued by the FAIR Plan constitute 3% or more of all policies
issued and in force in that county. The bill would authorize an insurer
to submit an IMAP filing to the department and the requirements of the
program are met. The bill would require the an IMAP filing submitted
to the Department of Insurance by an insurer to include include, among
other things, a request for adequate rates, a plan for maintaining
solvency of the insurer, and mitigation requirements. The bill would
also require an insurer to commit in the IMAP to offer new and renewal
residential property insurance policies in a set of IMAP counties until
the insurer achieves a market penetration rate in those IMAP counties
that is no lower than 85% of its statewide market penetration rate. The
bill would require an insurer that submits an IMAP filing to receive an
expedited review of its rate filing, not to exceed 120 days, if the insurer
uses an actuarial assumption for trend and loss development that is at
the midpoint or less of rate impacts, or files for a rate increase based
solely on increased reinsurance costs, and does not otherwise change
any other aspect of its rate filing from its previous department approved
rate. The bill would require the Office of Planning and Research, on or
before, January 1, 2023, to issue a report outlining the effectiveness of
the IMAP program.
By providing for an expedited review and approval of residential
property insurance rates, the bill would amend Proposition 103 and thus
require a 2⁄3 vote.
The bill would provide that its provisions are not severable.
The bill would make its operation contingent on the enactment of SB
292 of the 2019–20 Regular Session.
Vote: 2⁄3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
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— 2 — AB 2167 B-2
The people of the State of California do enact as follows:
line 1 SECTION 1. (a) The Legislature finds and declares all of the
line 2 following:
line 3 (a)
line 4 (1) Climate change has created a new reality in California.
line 5 Fifteen of the 20 most destructive wildfires in the state’s history
line 6 have occurred since 2000 and 10 of the most destructive fires have
line 7 occurred since 2015. More people died from wildfires in 2017 and
line 8 2018 than in the last 10 years combined.
line 9 (A) Igniting November 8, 2018, the Camp Fire burned for 17
line 10 days, killed at least 85 people, and destroyed over 18,800
line 11 structures. It is not only the most expensive wildfire in United
line 12 States history, but was the most expensive natural disaster
line 13 worldwide in 2018. Insured losses reached $12.5 billion, while
line 14 total losses were $16.5 billion.
line 15 (B) Also igniting November 8, 2018, the Woolsey Fire burned
line 16 for 14 days, killed three people, and destroyed over 1,600
line 17 buildings. Insured losses are estimated at $3 billion to $5 billion
line 18 of the $6 billion in total property losses.
line 19 (C) Igniting July 23, 2018, the Carr Fire burned for 37 days,
line 20 killed eight people, including three firefighters, and destroyed over
line 21 1,600 structures. The fire caused over $1.5 billion in property
line 22 damage.
line 23 (D) Igniting December 4, 2017, the Thomas Fire burned for 39
line 24 days, killed 23 people, including one firefighter and 21 people
line 25 from a resulting mudslide, and destroyed over 1,000 structures.
line 26 The fire caused over $2.2 billion in damages.
line 27 (E) Igniting October 8, 2017, the Tubbs Fire burned for 12 days,
line 28 killed 22 people, and destroyed over 5,600 structures. Insured
line 29 losses are estimated to be between $7.5 billion and $9.5 billion.
line 30 (F) Igniting October 8, 2017, the Atlas Fire burned for 12 days,
line 31 destroyed 25,000 acres, and destroyed over 700 buildings. Insured
line 32 losses are estimated to be between $2.5 billion and $4.5 billion.
line 33 (G) Burning for over three months in 2018, a less costly seventh
line 34 fire, the Mendocino Complex Fire, became the largest recorded
line 35 fire in state history when it consumed over 459,000 acres, more
line 36 than the previous largest fire, the Thomas Fire, in 2017.
line 37 (b)
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AB 2167 — 3 — B-3
line 1 (2) Fire season in California has changed. In the western United
line 2 States, the length of the fire season is over 80 days longer than it
line 3 was in the 1970s. According to research from the University of
line 4 California, Los Angeles, residents may no longer expect fire season
line 5 to end in September. Instead, the onset of seasonal rain can be
line 6 delayed into October or even November. These longer periods
line 7 without rain, combined with the well-known, heavy wind patterns
line 8 of autumn, have created increased likelihood of uncontrollable,
line 9 severe fires that endanger life and property. The Camp Fire in
line 10 Paradise is an example of a fire that started after the end of the
line 11 traditional fire season.
line 12 (c)
line 13 (3) The impact of catastrophic fires is multifaceted. While the
line 14 governmental costs of fire response and suppression are significant,
line 15 research from Headwaters Economics indicates those costs are
line 16 less than 10 percent of the total costs. Combined with suppression
line 17 expenses, other short-term costs, including evacuation and aid
line 18 relief, road stabilization, and home and property loss only represent
line 19 35 percent of the total wildfire-related costs. Longer term costs,
line 20 including loss of property value, tax revenue, and business revenue,
line 21 as well as landscape rehabilitation, infrastructure repair, loss of
line 22 ecosystem services, and human casualties represent the remaining
line 23 65 percent.
line 24 (4) According to a Department of Insurance 2018 report on
line 25 the availability and affordability of wildfire coverage, major
line 26 insurers are pulling back from writing new policies or renewing
line 27 policies in the wildland-urban interface (WUI) fire areas.
line 28 Additionally, premiums are increasing in the WUI, and most
line 29 insurers do not take into consideration wildfire mitigation
line 30 conducted by the homeowner or the community. This is in part
line 31 because no single insurer has loss experience in the WUI to
line 32 validate the rates and premiums charged for each wild fire risk
line 33 model score. The department’s report further states that a credible
line 34 database for wildfire loss experience in the WUI is needed in order
line 35 for insurers to use rating plans that impact rates in the WUI and
line 36 suggests that the Legislature should create a framework within
line 37 which insurers offer a mitigation premium credit for property
line 38 owners that conduct proper mitigation.
line 39 (5) The National Institute of Building Sciences studied 23 years
line 40 of federally funded mitigation grants provided by the Federal
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— 4 — AB 2167 B-4
line 1 Emergency Management Agency (FEMA), the United States
line 2 Economic Development Administration, and the United States
line 3 Department of Housing and Urban Development, and found that
line 4 hazard mitigation funding saves six dollars ($6) in future disaster
line 5 costs for every one dollar ($1) invested. Further, the study found
line 6 that designing buildings to meet the 2018 International Residential
line 7 Code and 2018 International Building Code would provide a
line 8 national benefit of eleven dollars ($11) for every one dollar ($1)
line 9 of investment when compared to 1990-era building codes and
line 10 National Flood Insurance Program requirements.
line 11 (6) Studying, developing, and incentivizing homeowners to
line 12 actively participate in, actuarially sound wildfire mitigation
line 13 measures is therefore a fiscally prudent policy with the potential
line 14 to save lives and prevent billions of dollars in future losses from
line 15 occurring. A regularly updated and secure central database of
line 16 publicly held housing infrastructure information, deployed in
line 17 support of a public catastrophic loss model, has the potential to
line 18 significantly enhance statewide disaster planning and response
line 19 efforts, as well as quantify the benefit of homeowners’ mitigation
line 20 efforts. In order to accomplish this goal, it is important for the
line 21 state to partner with insurers, insurance research organizations,
line 22 and local agencies to develop easily and uniformly enforced
line 23 defensible space practices and measurable mitigation efforts for
line 24 future study.
line 25 (7) Research shows that homeowners’ risk reduction behaviors
line 26 are influenced by the perceived effectiveness of the activities and
line 27 their perceived ability to complete them. Public outreach,
line 28 information sharing, and a communitywide collaborative process
line 29 on wildfire protection planning have been found to build trust
line 30 among residents and local fire agencies. It is the intent of the
line 31 Legislature to partner with local agencies throughout California’s
line 32 diverse wildfire risk regions in support of collecting regionally
line 33 specific housing infrastructure information in support of developing
line 34 regionally specific loss modeling.
line 35 (d)
line 36 (8) Residential property insurance provides essential financial
line 37 security for California residents for both short-term and long-term
line 38 costs. Insurance supports temporary needs for housing and
line 39 transportation for fire victims, intermediate needs for debris and
line 40 hazardous materials removal from fire-affected properties, and
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AB 2167 — 5 — B-5
line 1 long-term rebuilding of structures and replacement of personal
line 2 property. There is no governmental program that provides similar
line 3 comprehensive assistance for California residents and it is,
line 4 therefore, vital for the State of California to ensure the existence
line 5 of a vibrant residential property insurance marketplace capable of
line 6 serving all communities.
line 7 (e)
line 8 (9) Strains in the residential property insurance system are
line 9 becoming evident. As the Senate Committee on Insurance noted
line 10 in its 2019 informational hearing on homeowners’ insurance
line 11 availability and affordability, California policyholders have
line 12 “enjoyed a long spell of low insurance rates” but “climate change,
line 13 drought, population movement, and other factors may be changing
line 14 the fundamental nature of the homeowners’ insurance market.”
line 15 Analysis of countrywide data from the National Association of
line 16 Insurance Commissioners indicates that average homeowners’
line 17 insurance rates in California rank 32nd in the country and, when
line 18 adjusted for differences in regional costs, rank 49th in the country,
line 19 at less than one-half the cost for insurance in states exposed to
line 20 other natural disasters, including hurricanes.
line 21 (f)
line 22 (10) As part of a similar 2019 investigation of the homeowners’
line 23 insurance market, the Assembly Committee on Insurance noted
line 24 the acceleration of losses in this environment of relatively low
line 25 rates, finding that a “study of the homeowners’ insurance market
line 26 released in 2018 as part of California’s Fourth Climate Change
line 27 Assessment found that insured losses through 2017 wiped out the
line 28 entire underwriting profit insurers earned since 2000. The 2018
line 29 fires continued with another round of enormous losses.” The
line 30 committee cautioned against a legislative response that “increases
line 31 the likelihood of any policy change to generate unintended
line 32 consequences” and guarding against the great risk that regulating
line 33 some, but not all, of the important aspects of insurance could
line 34 “significantly disrupt a homeowners’ insurance market that is
line 35 effectively serving a great majority of California homeowners.”
line 36 (g)
line 37 (11) The final report of the Governor’s Commission on
line 38 Catastrophic Wildfire Cost and Recovery attempted to reconcile
line 39 the various competing interests associated with insurance
line 40 availability, risk selection, and pricing. The commission noted that
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— 6 — AB 2167 B-6
line 1 “while insurance is still largely available, it will become
line 2 increasingly unavailable and/or unaffordable for many in the
line 3 wildland urban interface in California.” In attempting to harmonize
line 4 the various competing interests for California, the commission
line 5 recommended preserving risk-based insurance pricing, while
line 6 avoiding cross-subsidies of high-risk areas by low-risk areas, as
line 7 well as developing incentives for parcel and community level loss
line 8 mitigation efforts.
line 9 (h)
line 10 (b) Based upon this extensive investigation in both the legislative
line 11 and executive branches, the Legislature has determined determines
line 12 that a state policy response is required to solve several issues
line 13 simultaneously, including, including all of the following:
line 14 (1) Ensuring insurance rates are adequate to avoid insurer
line 15 insolvencies and to permit insurers to operate in the state’s highest
line 16 risk areas, while imposing restrictions on rates above actuarially
line 17 justified levels.
line 18 (2) Reducing the number of residents that are required to rely
line 19 upon the California FAIR Plan, which the State of California
line 20 created to provide a market of last resort but which is a catastrophic
line 21 insurance pool at rate levels far higher than the regular insurance
line 22 market.
line 23 (3) Incentivizing insurers to seek cost-based rates in exchange
line 24 for assurances that they will serve high-risk communities at levels
line 25 similar to their statewide presence.
line 26 (4) Developing systems of accountability for individual and
line 27 community-based loss mitigation efforts.
line 28 (c) Recent wildfires have contributed to a surge of residential
line 29 property insurance policies being issued by the FAIR Plan in
line 30 numbers approaching that seen after the Northridge earthquake.
line 31 In order to monitor surges in new FAIR Plan policies and to create
line 32 a standard threshold to indicate when admitted market residential
line 33 property insurance availability in specified areas of the state has
line 34 declined, the Legislature determines that it is necessary to do all
line 35 of the following:
line 36 (1) Create a standard threshold for residential property
line 37 insurance policies to qualify for the Insurance Market Action Plan
line 38 (IMAP), established by this act, based on monitoring surges in
line 39 FAIR Plan new business that indicate a contracting insurance
line 40 market.
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AB 2167 — 7 — B-7
line 1 (2) Incentivize insurers to seek cost-based rates in exchange
line 2 for assurances that they will maintain an adequate presence in
line 3 specified high-risk areas of the state, and evaluate the effectiveness
line 4 of these methods at reducing reliance on the FAIR Plan in eligible
line 5 areas, thereby maintaining an adequate supply of admitted market
line 6 insurance at a price more affordable to most consumers than that
line 7 offered by the FAIR Plan.
line 8 (3) Establish a scientifically advanced probabilistic wildfire
line 9 loss model for the purpose of providing property and casualty
line 10 insurers access to a state of the art public tool that is accessible
line 11 for comparison, evaluation, and analysis of modeled risk
line 12 assumptions used in support of IMAP rate filings. In this regard,
line 13 it is the intent of the Legislature to convene an advisory committee
line 14 of public and private stakeholders to design standards for the use
line 15 of probabilistic wildfire loss models in residential property
line 16 insurance rate development, and to establish a database and
line 17 computer model for that purpose.
line 18 (A) The Legislature finds these measures are necessary to limit
line 19 the number of insurer-initiated nonrenewals that occur in response
line 20 to changes in the understanding of wildfire risk and to limit
line 21 homeowners’ reliance on the California FAIR Plan.
line 22 (B) The Legislature finds that such a model is an objective public
line 23 tool that will promote precision in loss projection, and that
line 24 decreasing the uncertainty of future losses in this state is necessary
line 25 to stabilize large price swings in the residential property insurance
line 26 market.
line 27 (C) The Legislature further intends that such a model be
line 28 available to assist state and local governments incorporate a
line 29 modeled understanding of the costs of wildfire risk in their planning
line 30 processes.
line 31 (i)
line 32 (d) To the extent that a court may find that this legislation
line 33 amends the Insurance Rate Reduction and Reform Act of 1988,
line 34 an initiative measure, enacted by Proposition 103, as approved by
line 35 the voters at the November 8, 1988, statewide general election,
line 36 the Legislature has determined that this act furthers the purpose
line 37 of Proposition 103 because the primary goal of this act is to
line 38 increase statewide availability of insurance using risk-based pricing
line 39 subject to the prior approval of the Insurance Commissioner, and
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— 8 — AB 2167 B-8
line 1 seeks to prevent unfair discrimination in pricing or unjustified
line 2 regional subsidies in high fire-risk areas.
line 3 SEC. 2. Chapter 12 (commencing with Section 10109) is added
line 4 to Part 1 of Division 2 of the Insurance Code, to read:
line 5
line 6 Chapter 12. Insurance Market Action Plan Wildfire
line 7 Risk Modeling and Mitigation
line 8
line 9 Article 1. Insurance Market Action Plan
line 10
line 11 10109. (a) The Insurance Market Action Plan (IMAP) program
line 12 is hereby established.
line 13 (b) (1) Residential property insurance policies in a county may
line 14 qualify for insurance market action plan (IMAP) protection if
line 15 residential property insurance policies issued by the California
line 16 FAIR Plan constitute 3 percent or more of all policies issued and
line 17 in force in the county, as annually calculated by the department
line 18 and the Department of Finance.
line 19 (2) A county that meets the requirements of paragraph (1) shall
line 20 be designated by the department as an IMAP county.
line 21 (c) If the IMAP process implemented by this chapter results in
line 22 eliminating the eligibility of all counties from being qualified under
line 23 subdivision (b), an insurer may continue to make IMAP filings
line 24 pursuant to this chapter.
line 25 10109. (a) The Insurance Market Action Plan (IMAP) program
line 26 is hereby established.
line 27 (b) Residential property insurance policies in a county may
line 28 qualify for insurance market action plan (IMAP) protection if the
line 29 requirements of this article are met.
line 30 10109.1 (a) An insurer may submit an IMAP filing submitted
line 31 to the department, which department by an insurer shall include
line 32 all of the following:
line 33 (1) A request for adequate rates, as described in Section 10109.3.
line 34 (2) A plan for maintaining the insurer’s solvency as policy count
line 35 grows in IMAP counties, taking into account, among other things,
line 36 risks related to overconcentration in high-risk communities.
line 37 (3) Parcel-level and community-based mitigation and
line 38 verification requirements, as described in Section 10109.2.
line 39 (4) A list of the areas within an IMAP eligible county in which
line 40 the insurer proposes to issue residential property insurance
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AB 2167 — 9 — B-9
line 1 pursuant to its IMAP filing, and a list of the areas within that
line 2 county in which the insurer shall not issue residential property
line 3 insurance pursuant to its IMAP filing.
line 4 (b) (1) An insurer shall commit in the IMAP to offer new and
line 5 renewal residential property insurance policies in a set of IMAP
line 6 counties until the insurer achieves a market penetration rate in
line 7 those IMAP counties that is no lower than 85 percent of its
line 8 statewide market penetration rate. The IMAP commitment shall
line 9 be calculated based on the insurer’s residential property insurance
line 10 policy count across the entire designated set of IMAP counties,
line 11 but need not be met in each county individually.
line 12 (2) Notwithstanding paragraph (1), an insurer shall monitor and
line 13 avoid overconcentration in any one particular area within an IMAP
line 14 county or across a particular IMAP county in order to prevent a
line 15 catastrophic loss that could impair its solvency.
line 16 10109.2. An IMAP filing shall set forth the mitigation standards
line 17 required in order for counties to qualify for IMAP protection,
line 18 including all of the following:
line 19 (a) Objective standards for parcel-level mitigation, along with
line 20 procedures for verifying that the mitigation actually occurred,
line 21 including any required governmental or third-party certifications.
line 22 (b) Requirements for community certifications, if any, including
line 23 designation as a Firewise USA site by the National Fire Protection
line 24 Association.
line 25 10109.3. (a) A rate proposed as part of an IMAP filing shall
line 26 not be excessive, inadequate, or unfairly discriminatory, and shall
line 27 be actuarially sound so that premiums are adequate to cover
line 28 expected losses, expenses, and taxes, and shall reflect investment
line 29 income of the insurer.
line 30 (b) A rate requested as part of an IMAP filing shall be subject
line 31 to the prior approval of the commissioner.
line 32 10109.4. A rate requested as part of an IMAP filing may be
line 33 based on a complex catastrophe model, as follows:
line 34 (a) The complex catastrophe model shall be based on the best
line 35 available scientific information for assessing the risk of catastrophic
line 36 wildfire frequency, severity, and loss.
line 37 (b) The projected losses derived from the catastrophe model
line 38 shall meet all applicable statutory standards.
line 39 (c) The complex catastrophe model shall consider both
line 40 parcel-level mitigation and regional mitigation.
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line 1 10109.5. (a) An insurer that submits an IMAP filing pursuant
line 2 to this chapter shall receive an expedited review of its rate filing
line 3 if either of the following conditions are met:
line 4 (1) The insurer uses an actuarial assumption for trend and loss
line 5 development that is at the midpoint or less of rate impacts, and
line 6 does not otherwise change any other aspect of its rate filing from
line 7 its previous department approved rate.
line 8 (2) The insurer files for a rate increase based solely on increased
line 9 reinsurance costs, subject to the requirements of Section 10109.6,
line 10 and does not otherwise change any other aspect of its rate filing
line 11 from its previous department approved rate.
line 12 (b) The time period for the expedited rate review shall not
line 13 exceed 120 days, and the department shall not request that the
line 14 insurer waive the 120-day requirement.
line 15 (c) If the department does not approve the filing within the 120
line 16 days, the IMAP filing is automatically withdrawn and the insurer
line 17 may continue with its previously approved rate and the insurer
line 18 retains the ability to select risks without meeting the requirements
line 19 of subdivision (b) of Section 10109.1.
line 20 (d) Notwithstanding subdivision (c), if an insurer submits an
line 21 IMAP filing to amend a rate level approved in a previous IMAP
line 22 filing, and the department does not approve the filing within the
line 23 120 days, the insurer’s IMAP commitments, including the
line 24 commitments commitment required by subdivision (b) of Section
line 25 10109.1, shall be suspended until the department and the insurer
line 26 reach agreement on the filing.
line 27 10109.6. If a rate requested as part of an IMAP filing includes
line 28 the net costs of reinsurance, including internal or external
line 29 reinsurance, the reinsurance agreement shall be entered into in
line 30 good faith in an arm’s length transaction and at fair market value
line 31 for the coverage provided. The reinsurance shall meet the
line 32 department’s statement credit requirements.
line 33 10109.7. If an insurer submits an IMAP filing pursuant to this
line 34 chapter and the department or an intervener objects to an issue
line 35 other than the rate calculation, then the expedited IMAP rate filing
line 36 shall be processed separately from the contested issue so that the
line 37 contested issue does not delay the expedited rate filing. If, based
line 38 on the contested issue, the department orders a nonconsensual
line 39 change to the IMAP, the insurer’s IMAP requirements shall be
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AB 2167 — 11 — B-11
line 1 suspended until the department and the insurer agree upon revised
line 2 terms for the IMAP.
line 3 10109.8. On or before January 1, 2023, the Office of Planning
line 4 and Research shall issue a report outlining the effectiveness of the
line 5 IMAP program that includes, but is not limited to, all of the
line 6 following:
line 7 (a) An analysis of whether the IMAP program achieved average
line 8 admitted market rates lower than the California FAIR Plan plus
line 9 difference in condition policies.
line 10 (b) An analysis of the overall progress of the IMAP program
line 11 towards achieving market penetration goals in IMAP counties.
line 12 This data shall be reported in aggregate.
line 13 (c) Recommendations for continued improvements to the IMAP
line 14 program.
line 15 SEC. 3. The provisions of this act are not severable. If any
line 16 provision of this act or its application is held invalid, all other
line 17 provisions of this act shall also be held invalid.
line 18 SEC. 4. This act shall become operative only if Senate Bill 292
line 19 of the 2019–20 Regular Session is enacted and becomes effective
line 20 on or before January 1, 2021.
O
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— 12 — AB 2167 B-12
July 7, 2020 Via Email
The Honorable Susan Rubio
California State Senate
State Capitol, Rm. 4052
Sacramento, CA 95814
SUBJECT: Notice of Opposition to SB 292
Dear Senator Rubio:
The City of Rancho Palos Verdes opposes SB 292, which, along with AB 2167, would
allow insurers to dramatically increase rates on homeowners and circumvent long-
standing processes and consumer protections.
Rancho Palos Verdes is the most populated city with 90% or more of residents living in
a Cal Fire-designated Very High Fire Hazard Severity Zone. Although there has not
been a major wildfire on the Palos Verdes Peninsula in more than a decade, some
residents have reported losing their insurance or seeing their premiums skyrocket due
to the City’s vulnerability to fires.
We echo the concerns with this legislation raised by consumer advocacy groups and
Insurance Commissioner Ricardo Lara. Passing this bill would only do more harm to
vulnerable homeowners at a time when California’s fire seasons are worsening in length
and severity. We also note that the bill has received little attention during states of
emergency due to the COVID-19 pandemic and civil unrest. Legislation with such
significant implications for your constituents deserves more scrutiny and public debate.
For these reasons, the City of Rancho Palos Verdes opposes SB 292.
Sincerely,
John Cruikshank
Mayor
C-1
cc: Assemblymember Adam Gray, Chair, Governmental Organization Committee
Ben Allen, Senator, 26th State Senate District
Al Muratsuchi, Assembly Member, 66th Assembly District
Jeff Kiernan, League of California Cities
Meg Desmond, League of California Cities
Marcel Rodarte, California Contract Cities Association
Rancho Palos Verdes City Council
Ara Mihranian, Interim City Manager
Kit Fox, Interim Deputy City Manager
C-2
AMENDED IN ASSEMBLY MAY 4, 2020
AMENDED IN ASSEMBLY JUNE 17, 2019
SENATE BILL No. 292
Introduced by Senator Rubio
(Principal coauthor: Assembly Member Daly)
(Coauthor: Senator Jones)
(Coauthors: Assembly Members Cooley, Mayes, and Medina)
February 14, 2019
An act to add Division 6 (commencing with Section 17000) to the
Insurance Code, relating to disaster mitigation, and making an
appropriation therefor. Sections 10109.05, 10109.07, 10109.2, 10109.4,
and 10109.8 to, and to add Article 2 (commencing with Section
10109.10) to Chapter 12 of Part 1 of Division 2 of, the Insurance Code,
relating to insurance.
legislative counsel’s digest
SB 292, as amended, Rubio. Prepared California Disaster Mitigation
Fund. Wildfire risk modeling and mitigation.
The Insurance Rate Reduction and Reform Act of 1988, an initiative
measure enacted by Proposition 103, as approved by the voters at the
November 8, 1988, statewide general election, prohibits specified
insurance rates from being approved or remaining in effect that are
excessive, inadequate, unfairly discriminatory, or otherwise in violation
of the act. The act requires an insurer that wishes to change a rate to
file a complete rate application with the Insurance Commissioner and
deems the application approved 60 days after public notice of the
application unless certain events occur, including that a consumer
requests a hearing, or the commissioner determines to hold a hearing.
97 D-1
The act requires hearings to be conducted pursuant to specified
provisions of law governing administrative hearings.
Under existing law, the California FAIR Plan Association is a joint
reinsurance association in which all insurers licensed to write basic
property insurance participate in administering a program for the
equitable apportionment of basic property insurance for persons who
are unable to obtain that coverage through normal channels.
This bill would require the association, on or before January 31 and
July 31 of each year, to submit a report to the commissioner that lists
certain counties, according to specified population thresholds, in which
the number of new residential property insurance policies issued by the
FAIR Plan during the prior 6 months equals a certain percentage of
the number of single family residences in that county. The bill would
require a county listed on the report to be designated by the department
as an insurance market protection (IMAP) eligible county under the
IMAP program that would be established if AB 2167 of the 2019–20
Regular Session is enacted. The bill would authorize an insurer to
submit an IMAP filing to the department for residential property
insurance policies issued in an IMAP eligible county and would require
the IMAP filing to set forth specified mitigation standards. The bill
would require the Office of Planning and Research, on or before,
January 1, 2023, to issue a report outlining the effectiveness of the
IMAP program.
This bill would state the intent of the Legislature to establish a
commission in state government consisting of the Insurance
Commissioner, the State Fire Marshall, the Executive Director of the
California Building Standards, and the Director of Emergency Services
to, among other things, convene stakeholders to develop regionally
specific community hardening standards that have the propensity for
reducing loss due to wildfires. The bill would create the Catastrophic
Modeling Advisory Committee to be chaired jointly by the Insurance
Commissioner and the Director of Emergency Services, or their
designees. The bill would prescribe the membership of the advisory
committee and would require the advisory committee to, among other
things, deliver to the Office of Emergency Services, on or before July
1, 2024, a comprehensive report detailing a plan for the Office of
Emergency Services to, upon appropriation by the Legislature, establish
and operate a public catastrophic loss model.
The bill would provide that its provisions are not severable.
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— 2 — SB 292 D-2
The bill would make its operation contingent on the enactment of AB
2167 of the 2019–20 Regular Session.
Existing law establishes the Department of Insurance, headed by the
Insurance Commissioner, which regulates insurers and insurance
practices. Existing law establishes various classes of insurance,
including, among others, fire and automobile insurance. Other existing
law establishes various grant programs aimed at funding disaster
mitigation activities, including a local assistance grant program for fire
prevention administered by the Department of Forestry and Fire
Protection, the Earthquake Brace and Bolt program administered by
the California Residential Mitigation Program, a joint powers authority
comprised of the California Earthquake Authority and the Office of
Emergency Services, and specified flood prevention programs
administered by the Department of Water Resources.
This bill would create the Prepared California Disaster Mitigation
Board in state government comprised of specified state officers or their
designees and appointed members of the public, as specified. The bill
would also establish the Prepared California Disaster Mitigation Program
to be administered by the board to award grants to homeowners for
fire-related disaster mitigation activities, as specified.
The bill would create the Prepared California Disaster Mitigation
Fund, as a continuously appropriated fund, for purposes of disaster
mitigation. The bill would impose a $12 annual assessment on all
residential property insurance policies, a $6 per vehicle annual
assessment on all private passenger and commercial automobile
insurance policies, and an annual assessment of 1% of the annual
premium on all commercial insurance policies covering physical
property damage or business interruption. The bill would require the
assessments to be collected from policyholders by insurers and remitted
to the department for deposit into the fund. By creating a continuously
appropriated fund, the bill would make an appropriation.
The bill would require the board to annually distribute money from
the fund, as it deems appropriate, based on the disaster mitigation needs
of the state to specified state agencies, including at least 20% each to
the Department of Forestry and Fire Protection for purposes of a local
assistance grant program for fire protection activities, to the California
Earthquake Authority for purposes of awarding grants pursuant to the
Earthquake Brace and Bolt program, to the Department of Water
Resources for purposes of specified flood control programs, and to the
board to be awarded pursuant to the Prepared California Disaster
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SB 292 — 3 — D-3
Mitigation Program for purposes of grants to homeowners for
fire-related disaster mitigation purposes. The bill would require the
Department of Forestry and Fire Protection, the California Earthquake
Authority, and the Department of Water Resources to report specified
information to the board relating to the types of mitigation activities
funded and information sufficient to allow the board to study mitigation
effectiveness, as specified.
The bill would require the board to prepare a report to be submitted
to the Legislature on or before January 1, 2021, and annually thereafter,
that includes, among other things, a summary of the mitigation measures
funded and an analysis of the effectiveness of those mitigation measures
in preventing losses from wildfires, earthquakes, and floods, as specified.
The bill would also require the board to prepare and submit a report to
the Legislature on or before January 1, 2024, that contains
recommendations for model homeowners insurance discounts based
on the risk mitigation measures that the board has determined to reduce
loss.
Vote: 2⁄3 majority. Appropriation: yes no. Fiscal committee:
yes. State-mandated local program: no.
The people of the State of California do enact as follows:
line 1 SECTION 1. (a) The Legislature finds and declares all of the
line 2 following:
line 3 (1) Climate change has created a new reality in California.
line 4 Fifteen of the 20 most destructive wildfires in the state’s history
line 5 have occurred since 2000 and 10 of the most destructive fires have
line 6 occurred since 2015. More people died from wildfires in 2017 and
line 7 2018 than in the last 10 years combined.
line 8 (A) Igniting November 8, 2018, the Camp Fire burned for 17
line 9 days, killed at least 85 people, and destroyed over 18,800
line 10 structures. It is not only the most expensive wildfire in United
line 11 States history, but was the most expensive natural disaster
line 12 worldwide in 2018. Insured losses reached $12.5 billion, while
line 13 total losses were $16.5 billion.
line 14 (B) Also igniting November 8, 2018, the Woolsey Fire burned
line 15 for 14 days, killed three people, and destroyed over 1,600
line 16 buildings. Insured losses are estimated at $3 billion to $5 billion
line 17 of the $6 billion in total property losses.
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— 4 — SB 292 D-4
line 1 (C) Igniting July 23, 2018, the Carr Fire burned for 37 days,
line 2 killed eight people, including three firefighters, and destroyed over
line 3 1,600 structures. The fire caused over $1.5 billion in property
line 4 damage.
line 5 (D) Igniting December 4, 2017, the Thomas Fire burned for 39
line 6 days, killed 23 people, including one firefighter and 21 people
line 7 from a resulting mudslide, and destroyed over 1,000 structures.
line 8 The fire caused over $2.2 billion in damages.
line 9 (E) Igniting October 8, 2017, the Tubbs Fire burned for 12 days,
line 10 killed 22 people, and destroyed over 5,600 structures. Insured
line 11 losses are estimated to be between $7.5 billion and $9.5 billion.
line 12 (F) Igniting October 8, 2017, the Atlas Fire burned for 12 days,
line 13 destroyed 25,000 acres, and destroyed over 700 buildings. Insured
line 14 losses are estimated to be between $2.5 billion and $4.5 billion.
line 15 (G) Burning for over three months in 2018, a less costly seventh
line 16 fire, the Mendocino Complex Fire, became the largest recorded
line 17 fire in state history when it consumed over 459,000 acres, more
line 18 than the previous largest fire, the Thomas Fire, in 2017.
line 19 (2) Fire season in California has changed. In the western United
line 20 States, the length of the fire season is over 80 days longer than it
line 21 was in the 1970s. According to research from the University of
line 22 California, Los Angeles, residents may no longer expect fire season
line 23 to end in September. Instead, the onset of seasonal rain can be
line 24 delayed into October or even November. These longer periods
line 25 without rain, combined with the well-known, heavy wind patterns
line 26 of autumn, have created increased likelihood of uncontrollable,
line 27 severe fires that endanger life and property. The Camp Fire in
line 28 Paradise is an example of a fire that started after the end of the
line 29 traditional fire season.
line 30 (3) The impact of catastrophic fires is multifaceted. While the
line 31 governmental costs of fire response and suppression are
line 32 significant, research from Headwaters Economics indicates those
line 33 costs are less than 10 percent of the total costs. Combined with
line 34 suppression expenses, other short-term costs, including evacuation
line 35 and aid relief, road stabilization, and home and property loss only
line 36 represent 35 percent of the total wildfire-related costs. Longer
line 37 term costs, including loss of property value, tax revenue, and
line 38 business revenue, as well as landscape rehabilitation,
line 39 infrastructure repair, loss of ecosystem services, and human
line 40 casualties represent the remaining 65 percent.
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SB 292 — 5 — D-5
line 1 (4) According to a Department of Insurance 2018 report on the
line 2 availability and affordability of wildfire coverage, major insurers
line 3 are pulling back from writing new policies or renewing policies
line 4 in the wildland-urban interface (WUI) fire areas. Additionally,
line 5 premiums are increasing in the WUI, and most insurers do not
line 6 take into consideration wildfire mitigation conducted by the
line 7 homeowner or the community. This is in part because no single
line 8 insurer has loss experience in the WUI to validate the rates and
line 9 premiums charged for each wild fire risk model score. The
line 10 department’s report further states that a credible database for
line 11 wildfire loss experience in the WUI is needed in order for insurers
line 12 to use rating plans that impact rates in the WUI and suggests that
line 13 the Legislature should create a framework within which insurers
line 14 offer a mitigation premium credit for property owners that conduct
line 15 proper mitigation.
line 16 (5) The National Institute of Building Sciences studied 23 years
line 17 of federally funded mitigation grants provided by the Federal
line 18 Emergency Management Agency (FEMA), the United States
line 19 Economic Development Administration, and the United States
line 20 Department of Housing and Urban Development, and found that
line 21 hazard mitigation funding saves $6 in future disaster costs for
line 22 every $1 invested. Further, the study found that designing buildings
line 23 to meet the 2018 International Residential Code and 2018
line 24 International Building Code would provide a national benefit of
line 25 $11 for every $1 of investment when compared to 1990-era building
line 26 codes and National Flood Insurance Program requirements.
line 27 (6) Studying, developing, and incentivizing homeowners to
line 28 actively participate in, actuarially sound wildfire mitigation
line 29 measures is therefore a fiscally prudent policy with the potential
line 30 to save lives and prevent billions of dollars in future losses from
line 31 occurring. A regularly updated and secure central database of
line 32 publicly held housing infrastructure information, deployed in
line 33 support of a public catastrophic loss model, has the potential to
line 34 significantly enhance statewide disaster planning and response
line 35 efforts, as well as quantify the benefit of homeowners’ mitigation
line 36 efforts. In order to accomplish this goal, it is important for the
line 37 state to partner with insurers, insurance research organizations,
line 38 and local agencies to develop easily and uniformly enforced
line 39 defensible space practices and measurable mitigation efforts for
line 40 future study.
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— 6 — SB 292 D-6
line 1 (7) Research shows that homeowners’ risk reduction behaviors
line 2 are influenced by the perceived effectiveness of the activities and
line 3 their perceived ability to complete them. Public outreach,
line 4 information sharing, and a communitywide collaborative process
line 5 on wildfire protection planning have been found to build trust
line 6 among residents and local fire agencies. It is the intent of the
line 7 Legislature to partner with local agencies throughout California’s
line 8 diverse wildfire risk regions in support of collecting regionally
line 9 specific housing infrastructure information in support of developing
line 10 regionally specific loss modeling.
line 11 (8) Residential property insurance provides essential financial
line 12 security for California residents for both short-term and long-term
line 13 costs. Insurance supports temporary needs for housing and
line 14 transportation for fire victims, intermediate needs for debris and
line 15 hazardous materials removal from fire-affected properties, and
line 16 long-term rebuilding of structures and replacement of personal
line 17 property. There is no governmental program that provides similar
line 18 comprehensive assistance for California residents and it is,
line 19 therefore, vital for the State of California to ensure the existence
line 20 of a vibrant residential property insurance marketplace capable
line 21 of serving all communities.
line 22 (9) Strains in the residential property insurance system are
line 23 becoming evident. As the Senate Committee on Insurance noted
line 24 in its 2019 informational hearing on homeowners’ insurance
line 25 availability and affordability, California policyholders have
line 26 “enjoyed a long spell of low insurance rates” but “climate change,
line 27 drought, population movement, and other factors may be changing
line 28 the fundamental nature of the homeowners’ insurance market.”
line 29 Analysis of countrywide data from the National Association of
line 30 Insurance Commissioners indicates that average homeowners’
line 31 insurance rates in California rank 32nd in the country and, when
line 32 adjusted for differences in regional costs, rank 49th in the country,
line 33 at less than one-half the cost for insurance in states exposed to
line 34 other natural disasters, including hurricanes.
line 35 (10) As part of a similar 2019 investigation of the homeowners’
line 36 insurance market, the Assembly Committee on Insurance noted
line 37 the acceleration of losses in this environment of relatively low
line 38 rates, finding that a “study of the homeowners’ insurance market
line 39 released in 2018 as part of California’s Fourth Climate Change
line 40 Assessment found that insured losses through 2017 wiped out the
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SB 292 — 7 — D-7
line 1 entire underwriting profit insurers earned since 2000. The 2018
line 2 fires continued with another round of enormous losses.” The
line 3 committee cautioned against a legislative response that “increases
line 4 the likelihood of any policy change to generate unintended
line 5 consequences” and guarding against the great risk that regulating
line 6 some, but not all, of the important aspects of insurance could
line 7 “significantly disrupt a homeowners’ insurance market that is
line 8 effectively serving a great majority of California homeowners.”
line 9 (11) The final report of the Governor’s Commission on
line 10 Catastrophic Wildfire Cost and Recovery attempted to reconcile
line 11 the various competing interests associated with insurance
line 12 availability, risk selection, and pricing. The commission noted that
line 13 “while insurance is still largely available, it will become
line 14 increasingly unavailable and/or unaffordable for many in the
line 15 wildland urban interface in California.” In attempting to
line 16 harmonize the various competing interests for California, the
line 17 commission recommended preserving risk-based insurance pricing,
line 18 while avoiding cross-subsidies of high-risk areas by low-risk areas,
line 19 as well as developing incentives for parcel and community level
line 20 loss mitigation efforts.
line 21 (b) Based upon this extensive investigation in both the legislative
line 22 and executive branches, the Legislature determines that a state
line 23 policy response is required to solve several issues simultaneously,
line 24 including all of the following:
line 25 (1) Ensuring insurance rates are adequate to avoid insurer
line 26 insolvencies and to permit insurers to operate in the state’s highest
line 27 risk areas, while imposing restrictions on rates above actuarially
line 28 justified levels.
line 29 (2) Reducing the number of residents that are required to rely
line 30 upon the California FAIR Plan, which the State of California
line 31 created to provide a market of last resort but which is a
line 32 catastrophic insurance pool at rate levels far higher than the
line 33 regular insurance market.
line 34 (3) Incentivizing insurers to seek cost-based rates in exchange
line 35 for assurances that they will serve high-risk communities at levels
line 36 similar to their statewide presence.
line 37 (4) Developing systems of accountability for individual and
line 38 community-based loss mitigation efforts.
line 39 (c) Recent wildfires have contributed to a surge of residential
line 40 property insurance policies being issued by the FAIR Plan in
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— 8 — SB 292 D-8
line 1 numbers approaching that seen after the Northridge earthquake.
line 2 In order to monitor the surges in new FAIR Plan policies and to
line 3 create a standard threshold to indicate when admitted market
line 4 residential property insurance availability in specified areas of
line 5 the state has declined, the Legislature determines that it is
line 6 necessary to do all of the following:
line 7 (1) Create a standard threshold for residential property
line 8 insurance policies to qualify for the Insurance Market Action Plan
line 9 (IMAP), established by this act, based on monitoring surges in
line 10 FAIR Plan new business that indicate a contracting insurance
line 11 market.
line 12 (2) Incentivize insurers to seek cost-based rates in exchange
line 13 for assurances that they will maintain an adequate presence in
line 14 specified high-risk areas of the state, and evaluate the effectiveness
line 15 of these methods at reducing reliance on the FAIR Plan in eligible
line 16 areas, thereby maintaining an adequate supply of admitted market
line 17 insurance at a price more affordable to most consumers than that
line 18 offered by the FAIR Plan.
line 19 (3) Establish a scientifically advanced probabilistic wildfire
line 20 loss model for the purpose of providing property and casualty
line 21 insurers access to a state of the art public tool that is accessible
line 22 for comparison, evaluation, and analysis of modeled risk
line 23 assumptions used in support of IMAP rate filings. In this regard,
line 24 it is the intent of the Legislature to convene an advisory committee
line 25 of public and private stakeholders to design standards for the use
line 26 of probabilistic wildfire loss models in residential property
line 27 insurance rate development, and to establish a database and
line 28 computer model for that purpose.
line 29 (4) The Legislature finds these measures are necessary to limit
line 30 the number of insurer-initiated nonrenewals that occur in response
line 31 to changes in the understanding of wildfire risk and to limit
line 32 homeowners’ reliance on the California FAIR Plan.
line 33 (A) The Legislature finds that such a model is an objective public
line 34 tool that will promote precision in loss projection, and that
line 35 decreasing the uncertainty of future losses in this state is necessary
line 36 to stabilize large price swings in the residential property insurance
line 37 market.
line 38 (B) The Legislature further intends that such a model be
line 39 available to assist state and local governments incorporate a
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SB 292 — 9 — D-9
line 1 modeled understanding of the costs of wildfire risk in their planning
line 2 processes.
line 3 SEC. 2. Section 10109.05 is added to the Insurance Code, to
line 4 read:
line 5 10109.05. (a) The California FAIR Plan Association shall, on
line 6 a biannual basis, submit a report to the commissioner that lists
line 7 the counties that meet the following criteria:
line 8 (1) The county has a population of 200,000 or fewer residents
line 9 and the number of new residential property insurance policies
line 10 issued by the FAIR Plan during the prior six months equals 1
line 11 percent or more of the number of single family residences in that
line 12 county.
line 13 (2) The county has a population of 200,001 to 400,000, inclusive,
line 14 residents and the number of new residential property insurance
line 15 policies issued by the FAIR Plan during the prior six months equals
line 16 0.75 percent or more of the number of single family residences in
line 17 that county.
line 18 (3) The county has a population of 400,001 to 800,000, inclusive,
line 19 residents and the number of new residential property insurance
line 20 policies issued by the FAIR Plan during the prior six months equals
line 21 0.35 percent or more of the number of single family residences in
line 22 that county.
line 23 (4) The county has a population of more than 800,000 residents
line 24 and the number of new residential property insurance policies
line 25 issued by the FAIR Plan during the prior six months equals 0.15
line 26 percent or more of the number of single family residences in that
line 27 county.
line 28 (b) For purposes of this section, county population and single
line 29 family residence counts shall be determined by the most recently
line 30 available estimates published by the Department of Finance.
line 31 (c) (1) The biannual reports submitted by the California FAIR
line 32 Plan Association pursuant to subdivision (a) shall be delivered to
line 33 the commissioner on or before January 31 and July 31 of each
line 34 year and shall be based on the sum of the new FAIR Plan
line 35 residential property insurance policies issued between July 1 and
line 36 December 31 of the prior year for the January 31 report and on
line 37 the sum of the new FAIR Plan residential insurance policies issued
line 38 between January 1 and June 30, inclusive, of that same year for
line 39 the July 31 report.
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— 10 — SB 292 D-10
line 1 (2) Notwithstanding subdivision (a) and paragraph (1), the
line 2 initial report due on or before January 31, 2021, shall include the
line 3 information required by subdivision (a) for the calendar years
line 4 2019 and 2020, organized in the same six-month time periods
line 5 described in paragraph (1), and using the information published
line 6 by the Department of Finance for those years.
line 7 SEC. 3. Section 10109.07 is added to the Insurance Code, to
line 8 read:
line 9 10109.07. (a) A county that is listed on a report submitted to
line 10 the commissioner pursuant to Section 10109.05 shall be designated
line 11 by the department as an IMAP eligible county. The department’s
line 12 first designation shall include all the counties listed on the initial
line 13 report required pursuant to paragraph (2) of subdivision (c) of
line 14 Section 10109.05.
line 15 (b) An insurer may submit an IMAP filing to the department for
line 16 residential property insurance policies issued in an IMAP eligible
line 17 county.
line 18 (c) (1) If a county is originally designated as an IMAP eligible
line 19 county at the time an insurer submits and receives approval for
line 20 an IMAP filing in that county, but the county is subsequently not
line 21 designated as an IMAP eligible county, the insurer may continue
line 22 to issue new residential property insurance policies under the
line 23 IMAP rate in that county until the insurer files for a new rate in
line 24 that county or until two years after the date the county is no longer
line 25 designated by the department as an IMAP county, whichever occurs
line 26 first.
line 27 (2) Notwithstanding paragraph (1), if a county for which an
line 28 insurer has submitted an IMAP filing is no longer designated as
line 29 an IMAP eligible county, the insurer may continue to renew
line 30 policies with existing insureds in that county at the IMAP rate.
line 31 SEC. 4. Section 10109.2 is added to the Insurance Code, to
line 32 read:
line 33 10109.2. (a) An IMAP filing shall set forth community and
line 34 parcel-level mitigation standards, along with any necessary
line 35 procedures for verifying mitigation activities, including any
line 36 required governmental or third-party certifications.
line 37 (b) The commissioner may periodically connect IMAP eligible
line 38 county representatives with representatives from IMAP
line 39 participating insurers and third-party fire protection or
line 40 certification associations to promote collaboration between local
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SB 292 — 11 — D-11
line 1 governments and industry on local policies for IMAP filings made
line 2 pursuant to this article.
line 3 SEC. 5. Section 10109.4 is added to the Insurance Code, to
line 4 read:
line 5 10109.4. A rate requested as part of an IMAP filing may be
line 6 based on a complex catastrophe model, as follows:
line 7 (a) The complex catastrophe model shall be based on the best
line 8 available scientific information for assessing the risk of
line 9 catastrophic wildfire frequency, severity, and loss.
line 10 (b) The projected losses derived from the catastrophe model
line 11 shall meet all applicable statutory standards.
line 12 (c) The complex catastrophe model shall consider both
line 13 parcel-level mitigation and regional mitigation.
line 14 SEC. 6. Section 10109.8 is added to the Insurance Code, to
line 15 read:
line 16 10109.8. On or before January 1, 2023, the Office of Planning
line 17 and Research shall issue a report outlining the effectiveness of the
line 18 IMAP program that includes, but is not limited to, all of the
line 19 following:
line 20 (a) An analysis of whether the IMAP program achieved average
line 21 admitted market rates lower than the California FAIR Plan plus
line 22 difference in condition policies.
line 23 (b) An analysis of the overall progress of the IMAP program
line 24 towards achieving market penetration goals in IMAP counties and
line 25 the impact on FAIR Plan enrollments. This data shall be reported
line 26 in aggregate.
line 27 (c) Recommendations for continued improvements to the IMAP
line 28 program.
line 29 SEC. 7. Article 2 (commencing with Section 10109.10) is added
line 30 to Chapter 12 of Part 1 of Division 2 of the Insurance Code, to
line 31 read:
line 32
line 33 Article 2. Catastrophic Loss Modeling
line 34
line 35 10109.10 (a) It is the intent of the Legislature to establish in
line 36 state government a commission that shall consist of the following
line 37 members, or their designees:
line 38 (1) The Insurance Commissioner.
line 39 (2) The State Fire Marshall.
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line 1 (3) The Executive Director of the California Building Standards
line 2 Commission.
line 3 (4) The Director of Emergency Services.
line 4 (b) The commission shall annually elect from its membership,
line 5 a chairperson and a vice chairperson.
line 6 10109.11. It is the intent of the Legislature that the commission
line 7 established pursuant to Section 10109.10 be created for the
line 8 following purposes:
line 9 (a) To convene stakeholders from fire protection districts, the
line 10 insurance industry, the building trades industry, planning
line 11 associations, cities, and counties to develop regionally specific
line 12 community hardening standards that have the propensity for
line 13 reducing loss due to wildfires.
line 14 (b) To develop fire prevention standards for individual home
line 15 hardening activities specific to wildfire risks that differentiate
line 16 between, at a minimum, ember flow resistance and radiant heat
line 17 resistance.
line 18 (c) To establish a central database on housing infrastructure
line 19 data specific to wildfire risk for use by a public catastrophic loss
line 20 model.
line 21 (d) Develop a standard for the uniform collection and secure
line 22 storage of housing infrastructure data relevant to insurable risks
line 23 and necessary to run a sophisticated loss model.
line 24 10109.12. (a) The Catastrophic Modeling Advisory Committee
line 25 is hereby created, to be chaired jointly by the Insurance
line 26 Commissioner and the Director of Emergency Services, or their
line 27 designees. If the commission described in Section 10109.10 is
line 28 created, the advisory committee shall be under the direction of the
line 29 commission.
line 30 (b) In addition to the Insurance Commissioner and the Director
line 31 of Emergency Services, the advisory committee shall consist of the
line 32 following members:
line 33 (1) Four members appointed by the Governor, as follows:
line 34 (A) An actuary from the insurance industry.
line 35 (B) A representative from an insurance research organization
line 36 with expertise in wildfire risk modeling.
line 37 (C) Two full-time faculty members from a California public
line 38 university with expertise in the following fields:
line 39 (i) Statistics.
line 40 (ii) Computer system design.
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line 1 (2) Two full-time faculty members from the University of
line 2 California, to be appointed by the Senate Committee on Rules from
line 3 a list provided by the Regents of the University of California, with
line 4 expertise in the following fields:
line 5 (A) Wildfire modeling.
line 6 (B) Regional modeling.
line 7 (3) Two full-time faculty members from the University of
line 8 California, to be appointed by the Speaker of the Assembly from
line 9 a list provided by the Regents of the University of California, with
line 10 expertise in the following fields:
line 11 (A) Fire weather studies.
line 12 (B) Wind modeling.
line 13 (c) (1) The initial appointments for the members described in
line 14 paragraphs (1) to (3), inclusive, of subdivision (b) shall be made
line 15 on or before July 1, 2021.
line 16 (2) The terms for the members appointed pursuant to paragraph
line 17 (1) of subdivision (b) shall be for a period of three years.
line 18 (3) The terms for the members appointed pursuant to paragraphs
line 19 (2) and (3) of subdivision (b) shall terminate on the date the report
line 20 is issued pursuant to Section 10109.14.
line 21 10109.13. The advisory committee shall meet at least quarterly
line 22 and shall do all of the following:
line 23 (a) Gather existing sources of publicly available housing
line 24 infrastructure data relevant to wildfire loss projection and deposit
line 25 data in a central database.
line 26 (b) Compile for study the existing wildfire modeling efforts and
line 27 capabilities of the University of California, and other public and
line 28 private universities and research organizations.
line 29 (c) Develop a comprehensive plan for the establishment of a
line 30 public catastrophic wildfire loss model pursuant to Section
line 31 10109.14.
line 32 10109.14. (a) On or before July 1, 2024, the advisory
line 33 committee shall deliver to the Office of Emergency Services, a
line 34 comprehensive report detailing a plan for the Office of Emergency
line 35 Services to, upon appropriation by the Legislature, establish and
line 36 operate a public catastrophic loss model.
line 37 (b) The comprehensive report shall do all of the following:
line 38 (1) Adopt the best scientifically available actuarial methods,
line 39 principles, standards, models, and output ranges that have the
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line 1 potential for improving the accuracy, precision, or reliability of
line 2 wildfire loss projections used by insurers.
line 3 (2) Review available public housing infrastructure data, and
line 4 identify other data necessary to operate a public wildfire loss
line 5 model.
line 6 (3) Recommend a standard for the uniform collection and secure
line 7 storage of housing infrastructure data relevant to insurable risks.
line 8 (4) Develop standards for model inputs, outputs, operation, and
line 9 review of wildfire loss models.
line 10 (5) Recommend additional public research needed in wildfire
line 11 loss modeling methodologies to improve loss projection precision
line 12 or that are necessary to complete a public catastrophic loss model.
line 13 (6) Identify the housing infrastructure data needed to create
line 14 actuarially sound methodologies for incorporating public and
line 15 privately collected data on defensible space and home hardening
line 16 methods into a public catastrophic loss model.
line 17 (7) Discuss potential interfaces for residential property insurers
line 18 to access the public model for comparison of assumptions, factors,
line 19 and detailed loss results, and for other analytical purposes and
line 20 review sufficient to evaluate the modeling used in support of rate
line 21 filings.
line 22 (A) This discussion shall consider strategies for public model
line 23 review of third-party models used in rate filings and shall consider
line 24 that access to the public model is intended to support the use of
line 25 probabilistic loss modeling in IMAP rate filings made pursuant
line 26 to Article 1 (commencing with Section 10109).
line 27 (B) A proposed public model review shall include a process to
line 28 determine whether insurer assumptions meet or fail the public
line 29 catastrophic wildfire loss model standards. Public model review
line 30 is intended to ensure that to the greatest extent possible, an
line 31 insurer’s findings, data, actuarial methods, principles, standards,
line 32 models, or output ranges relied upon to project losses are based
line 33 on the best available science.
line 34 (C) It is the intent of the Legislature to protect from public
line 35 disclosure proprietary third-party or in-house modeling data
line 36 submitted by an insurer for evaluation by or comparison with the
line 37 public model.
line 38 (8) Consider strategies for using the public model to help
line 39 insurers control concentration risk in a wildland urban interface
line 40 area. The strategies shall include a monitored evaluation process
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SB 292 — 15 — D-15
line 1 for the assumptions used by an insurer given different modeled
line 2 predictions for the insurer’s expected average annual loss,
line 3 probable maximum loss, maximum possible loss, and other metrics.
line 4 10109.15. The members of the advisory committee shall not
line 5 receive compensation, but shall receive per diem pursuant to
line 6 Section 11564.5 of the Government Code, and reimbursement for
line 7 actual and necessary expenses incurred in the performance of
line 8 membership duties.
line 9 SEC. 8. The provisions of this act are not severable. If any
line 10 provision of this act or its application is held invalid, all other
line 11 provisions of this act shall also be held invalid.
line 12 SEC. 9. This act shall become operative only if Assembly Bill
line 13 2167 of the 2019–20 Regular Session is enacted and becomes
line 14 effective on or before January 1, 2021.
line 15 SECTION 1. (a) The Legislature finds and declares all of the
line 16 following:
line 17 (1) California has over $1 trillion in economic loss risk exposure
line 18 from future catastrophic earthquakes, floods, and wildfires.
line 19 (2) Two-thirds of the earthquake risk in the United States resides
line 20 in California, and California has a long history of damaging and
line 21 lethal earthquakes.
line 22 (A) In 1994, the magnitude 6.7 Northridge earthquake killed
line 23 60 people, injured 9,000 more people, and displaced 125,000
line 24 people. The Northridge earthquake caused $49 billion in economic
line 25 damage and $25 billion in property damage to over 80,000
line 26 buildings. At the time, it was the costliest natural disaster in United
line 27 States history, but only $15.3 billion of the damaged was insured.
line 28 (B) In 1989, the magnitude 6.9 Loma Prieta earthquake killed
line 29 63 people, injured more than 3,700 people, displaced 3,000 people,
line 30 damaged or destroyed 12,000 homes, and caused more than $6
line 31 billion in property damage.
line 32 (C) In 1971, the magnitude 6.6 Sierra Madre earthquake killed
line 33 58 people, damaged 30,000 homes, and brought down parts of the
line 34 Interstate 5 and Interstate 210 freeways.
line 35 (D) In 1906, the magnitude 7.9 San Francisco earthquake killed
line 36 3,000 people, left 250,000 people homeless, and started a fire that
line 37 destroyed 28,000 buildings over 500 city blocks.
line 38 (E) According to the latest Uniform California Earthquake
line 39 Rupture Forecast, there is a 99 percent chance that an earthquake
line 40 of a magnitude 6.7 or greater will occur in California in the next
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line 1 30 years, as well as a 90 percent chance of a magnitude 7.0 or
line 2 greater earthquake and a 46 percent chance of a magnitude 7.5 or
line 3 greater earthquake occurring in the same period. According to the
line 4 United States Geological Survey, a magnitude 7.0 earthquake on
line 5 the Hayward Fault could displace 400,000 people and a similar
line 6 earthquake on the San Andreas Fault could displace 250,000
line 7 people. A 7.8 magnitude earthquake could cause as much as $213
line 8 billion in economic damages to the state.
line 9 (F) Prior to the 1994 Northridge earthquake, the insurance
line 10 industry dramatically underestimated the potential damage from
line 11 such moderate earthquakes. After experiencing a record 1,192
line 12 percent loss ratio on earthquake lines due to the Northridge
line 13 earthquake, many insurers considered leaving California. The
line 14 Legislature created the California Earthquake Authority (CEA) to
line 15 offer earthquake insurance in California and stabilize the
line 16 homeowners insurance market. Over 1,000,000 Californians now
line 17 hold a CEA policy, representing over 80 percent of the California
line 18 earthquake insurance market, but only 12 percent of the state’s
line 19 homeowners. Making CEA policies more affordable and attainable
line 20 to all Californians residing in high earthquake risk areas of the
line 21 state is critical to the state’s earthquake preparedness.
line 22 (3) Flooding occurs in all parts of California. About 90 percent
line 23 of floods are riverine. The state has over 7 million inhabitants and
line 24 over $580 billion in assets situated within 500-year flood plains.
line 25 Nearly one-half of the people living in California are concentrated
line 26 in the south coast region. Over the life of a 30-year mortgage, the
line 27 true risk of living in a 500-year flood plain amounts to a 6 percent
line 28 chance of flooding.
line 29 (A) Approximately 35 percent of agricultural land in the state
line 30 is located in flood plains, with $7 billion in crop value located in
line 31 500-year flood plain zones.
line 32 (B) Continuation or acceleration of sea level rise, in combination
line 33 with climate change driven precipitation changes, will likely result
line 34 in an increase in flood events, especially in the central valley.
line 35 (C) In 1997, 48 counties were declared disaster areas due to a
line 36 series of Pineapple Express storms overwhelming levees in the
line 37 Sacramento and San Joaquin River basins. The major flood event
line 38 inundated 300 square miles. Over 23,000 structures were damaged,
line 39 nine people were killed, and 120,000 people were evacuated.
line 40 Damages amounted to $2 billion.
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line 1 (D) In 1995, a major flood event affected nearly every part of
line 2 the state. Twenty-eight people were killed and the flood caused
line 3 $1.8 billion in damages.
line 4 (E) In 1986, a major flood event occurred when a nine-day
line 5 rainstorm caused several levee breaks, resulting in the inundation
line 6 of four Delta islands. The Sierra Nevada recorded 1,000-year
line 7 rainfalls, 50,000 people were evacuated, and 13 people were killed.
line 8 The flood caused $400 million in property damage.
line 9 (F) In 1955, a statewide disaster was declared when a storm
line 10 caused a flood that killed 74 people and caused $200 million in
line 11 economic losses.
line 12 (G) In 1909, a 12,000-year rain event over the Feather River
line 13 basin resulted in La Porte receiving 57.41 inches of rain over 20
line 14 days. The flood resulted in an overhaul of planned statewide flood
line 15 control designs.
line 16 (H) In 1862, a storm dumped 10 feet of rainfall in California
line 17 over 43 days, causing immense flooding. Known as the “Great
line 18 Flood of 1862,” the flood washed away bridges and inundated
line 19 over 5,000 square miles of the Central Valley with up to 30 feet
line 20 of water. The Great Flood of 1862 was a 1,000-year flood event.
line 21 Models that project the impact of such a storm today, also known
line 22 as an ARkStorm, suggest up to 1.5 million people could be
line 23 displaced and the state could suffer $725 billion in economic losses.
line 24 (I) The federal National Flood Insurance Program is $25 billion
line 25 in debt, and is heavily subsidized. Private market flood insurance
line 26 exists, but accurate flood risk data is unavailable. According to a
line 27 2017 United States Department of Homeland Security Office of
line 28 Inspector General report, only 42 percent of the Federal Emergency
line 29 Management Agency’s (FEMA’s) flood maps adequately identify
line 30 the level of flood risk. These out-of-date maps interfere with price
line 31 signals for insurance premiums and home prices, and do not
line 32 adequately communicate the flood risk to would-be homebuyers
line 33 or insurers.
line 34 (4) Over 2 million homes, or approximately 15 percent of
line 35 California’s housing stock, is at high or extreme risk from wildfires.
line 36 California’s total housing risk exposure to wildfire damage is $249
line 37 billion.
line 38 (A) The top 10 costliest wildfires in United States history have
line 39 all occurred in California, and 6 of those occurred in 2017 and
line 40 2018. More people died from wildfires in 2017 and 2018 than in
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line 1 the last 10 years combined. The 2017 and 2018 fires caused a
line 2 combined $24.8 billion in insurance claims, including $21.6 billion
line 3 in residential personal property claims, $2.5 billion in commercial
line 4 property claims, and approximately $500,000 in auto claims.
line 5 (B) Igniting November 8, 2018, the Camp Fire burned for 17
line 6 days, killed at least 85 people, and destroyed over 18,800
line 7 structures. It is not only the most expensive wildfire in United
line 8 States history, but was the most expensive natural disaster
line 9 worldwide in 2018. Insured losses reached $12.5 billion, while
line 10 total losses were $16.5 billion.
line 11 (C) Also igniting November 8, 2018, the Woolsey Fire burned
line 12 for 14 days, killed three people, and destroyed over 1,600 buildings.
line 13 Insured losses are estimated at $3 billion to $5 billion of the $6
line 14 billion in total property losses.
line 15 (D) Igniting July 23, 2018, the Carr Fire burned for 37 days,
line 16 killed eight people, including three firefighters, and destroyed over
line 17 1,600 structures. The fire caused over $1.5 billion in property
line 18 damage.
line 19 (E) Igniting December 4, 2017, the Thomas Fire burned for 39
line 20 days, killed 23 people, including one firefighter and 21 people
line 21 from a resulting mudslide, and destroyed over 1,000 structures.
line 22 The fire caused over $2.2 billion in damages.
line 23 (F) Igniting October 8, 2017, the Tubbs Fire burned for 12 days,
line 24 killed 22 people, and destroyed over 5,600 structures. Insured
line 25 losses are estimated to be between $7.5 billion and $9.5 billion.
line 26 (G) Igniting October 8, 2017, the Atlas Fire burned for 12 days,
line 27 destroyed 25,000 acres, and destroyed over 700 buildings. Insured
line 28 losses are estimated to be between $2.5 billion and $4.5 billion.
line 29 (H) Burning for over three months in 2018, a less costly seventh
line 30 fire, the Mendocino Complex Fire, became the largest recorded
line 31 fire in state history when it consumed over 459,000 acres, more
line 32 than the previous largest fire, the Thomas Fire, in 2017.
line 33 (I) According to a Department of Insurance 2018 report on the
line 34 availability and affordability of wildfire coverage, major insurers
line 35 are pulling back from writing new policies or renewing policies
line 36 in the wildland-urban interface (WUI) fire areas. Additionally,
line 37 premiums are increasing in the WUI, and most insurers do not take
line 38 into consideration wildfire mitigation conducted by the homeowner
line 39 or the community. This is in part because no single insurer has
line 40 loss experience in the WUI to validate the rates and premiums
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SB 292 — 19 — D-19
line 1 charged for each wild fire risk model score. The department’s
line 2 report further states that a credible database for wildfire loss
line 3 experience in the WUI is needed in order for insurers to use rating
line 4 plans that impact rates in the WUI and suggests that the Legislature
line 5 should create a framework within which insurers offer a mitigation
line 6 premium credit for property owners that conduct proper mitigation.
line 7 (5) Incentivizing homeowners to actively participate in
line 8 mitigation measures is critical to statewide preparedness. Research
line 9 shows that homeowners’ risk reduction behaviors are influenced
line 10 by the perceived effectiveness of the activities and their perceived
line 11 ability to complete them. Public outreach, information sharing,
line 12 and a communitywide collaborative process on wildfire protection
line 13 planning have been found to build trust among residents and local
line 14 fire agencies.
line 15 (6) The National Institute of Building Sciences studied 23 years
line 16 of federally funded mitigation grants provided by FEMA, the
line 17 United States Economic Development Administration, and the
line 18 United States Department of Housing and Urban Development,
line 19 and found that hazard mitigation funding saves $6 in future disaster
line 20 costs for every $1 invested. Further, the study found that designing
line 21 buildings to meet the 2018 International Residential Code and
line 22 2018 International Building Code would provide a national benefit
line 23 of $11 for every $1 of investment when compared to 1990-era
line 24 building codes and National Flood Insurance Program
line 25 requirements.
line 26 (b) It is, therefore, the intent of the Legislature to do all of the
line 27 following:
line 28 (1) Establish an ongoing catastrophic risk mitigation fund to
line 29 prepare California’s local governments, homeowners, and small
line 30 businesses for our top natural disaster risks: earthquakes, wildfires,
line 31 and floods.
line 32 (2) Increase investment in the Department of Forestry and Fire
line 33 Protection’s (CAL FIRE’s) local assistance grant program for fire
line 34 protection, so that local governments may invest in equipment,
line 35 build fire lines, and launch community preparedness efforts.
line 36 (3) Increase investment in the California Earthquake Authority’s
line 37 Earthquake Brace and Bolt program, as well as design additional
line 38 retrofit programs, so that homeowners may affordably retrofit their
line 39 homes and prepare for the next earthquake.
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line 1 (4) Increase investment in the Department of Water Resources
line 2 flood control grant programs, so that local governments have the
line 3 resources to save their residents’ homes from floods.
line 4 (5) Increase investment in homeowners and small businesses
line 5 that perform mitigation on their property, by offering grants and
line 6 rebates for specific mitigation efforts, so that others may be
line 7 incentivized to follow their lead.
line 8 (6) Study the effectiveness of mitigation measures for the benefit
line 9 of homeowners and insurers by giving insurers a data-driven tool
line 10 for the development of insurance premium credits and discounts
line 11 for specific mitigation measures.
line 12 SEC. 2. Division 6 (commencing with Section 17000) is added
line 13 to the Insurance Code, to read:
line 14
line 15 DIVISION 6. DISASTER MITIGATION
line 16
line 17 Chapter 1. Definitions
line 18
line 19 17000. For purposes of this division,“board” means the
line 20 Prepared California Disaster Mitigation Board.
line 21
line 22 Chapter 2. Prepared California Disaster Mitigation
line 23 Fund
line 24
line 25 17001. There is hereby created the Prepared California Disaster
line 26 Mitigation Fund within the State Treasury. Notwithstanding Section
line 27 13340 of the Government Code, moneys in the fund are
line 28 continuously appropriated without regard to fiscal year to the board
line 29 for the purposes specified in this division.
line 30 17002. (a) An annual assessment is hereby imposed on the
line 31 following insurance policies:
line 32 (1) A twelve-dollar ($12) annual assessment on all residential
line 33 property insurance policies, including homeowner’s insurance,
line 34 fire insurance, earthquake insurance, and policies covering
line 35 condominiums and mobilehomes.
line 36 (2) A six-dollar ($6) per vehicle annual assessment on all private
line 37 passenger and commercial automobile insurance policies.
line 38 (3) An annual assessment of 1 percent of the annual premium
line 39 on all commercial insurance policies covering physical property
line 40 damage or business interruption.
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line 1 (b) The assessments shall be collected from policyholders by
line 2 insurers and remitted to the Department of Insurance for deposit
line 3 into the Prepared California Disaster Mitigation Fund.
line 4 (c) (1) Assessments collected pursuant to this section are not
line 5 part of an insurer’s rates or rating plan, are not premiums for any
line 6 purpose, and are not subject to premium taxes, fees, or
line 7 commissions.
line 8 (2) The amount of the assessment shall be separately stated on
line 9 either a billing or policy declaration sent to an insured.
line 10
line 11 Chapter 3. Prepared Disaster Mitigation Program
line 12
line 13 17010. There is hereby created the Prepared California Disaster
line 14 Mitigation Board in state government.
line 15 17011. (a) The board shall be comprised of the following
line 16 members:
line 17 (1) The Insurance Commissioner or their designee.
line 18 (2) The Director of Emergency Services or their designee.
line 19 (3) The Director of Forestry and Fire Protection or their
line 20 designee.
line 21 (4) The Director of Water Resources or their designee.
line 22 (5) The Senate Committee on Rules shall appoint two members
line 23 to serve three-year terms as follows:
line 24 (A) One member of the public with experience in the insurance
line 25 industry.
line 26 (B) One member of the public with experience in the risk
line 27 analytics industry.
line 28 (6) The Speaker of the Assembly shall appoint two members
line 29 to serve three-year terms as follows:
line 30 (A) One member of the public with experience in the insurance
line 31 industry.
line 32 (B) One member of the public with experience in fire science.
line 33 (7) The Governor shall appoint four members to serve at the
line 34 pleasure of the Governor as follows:
line 35 (A) One member of the public with experience in the insurance
line 36 industry.
line 37 (B) One member of the public to represent insurance consumers.
line 38 (C) One member of the public with expertise in earthquake
line 39 engineering.
line 40 (D) One member of the public.
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line 1 (b) The Governor shall appoint the chair of the board.
line 2 (c) The members of the board shall serve without compensation,
line 3 but each of the public members shall be reimbursed for the
line 4 member’s actual and necessary expenses incurred in the
line 5 performance of that member’s duties.
line 6 17012. (a) There is hereby established the Prepared California
line 7 Disaster Mitigation Program to be administered by the board to
line 8 award grants to homeowners for fire-related disaster mitigation
line 9 activities.
line 10 (b) The board shall develop, advertise, and offer to homeowners,
line 11 mitigation grants and rebates designed to decrease risk of loss from
line 12 wildfire or earthquake-caused fire, including any of the following:
line 13 (1) Grants for installation or replacement of the following:
line 14 (A) Fire-resistant roofing.
line 15 (B) Fire-resistant siding.
line 16 (C) Fire-resistant eaves or soffits.
line 17 (D) Fire-resistant windows.
line 18 (E) Exterior roof-mounted fire sprinklers.
line 19 (2) Grants for the replacement of exterior deck wood with
line 20 fire-retardant treated wood or other fire safe materials.
line 21 (3) Grants for the removal of hazardous trees within 30 feet of
line 22 a home.
line 23 (4) Rebates for the installation or replacement of the following:
line 24 (A) Earthquake shutoff valves.
line 25 (B) Exterior vent screens.
line 26 (C) Weatherstripping or fire seal strips.
line 27 (D) Trimming of hazardous trees within 100 feet of a home.
line 28 (E) Rain gutter guards or rain gutters designed to prevent
line 29 accumulation of debris.
line 30 (5) Rebates for additional low-cost retrofits, as identified by the
line 31 State Fire Marshal pursuant to subdivision (c) of Section 51189
line 32 of the Government Code, that provide comprehensive site and
line 33 structure fire risk reduction.
line 34 (c) The board shall determine the amount of each grant or rebate
line 35 to be offered as follows:
line 36 (1) An amount up to 100 percent of the cost for mitigation
line 37 projects estimated to cost one thousand dollars ($1,000) or less.
line 38 (2) An amount up to 50 percent of the cost of mitigation projects
line 39 estimated to cost more than one thousand dollars ($1,000), provided
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SB 292 — 23 — D-23
line 1 that no grant or rebate may be awarded for more than five thousand
line 2 dollars ($5,000).
line 3 (d) The board shall collect data from grant and rebate recipients
line 4 on the types and locations of mitigation efforts undertaken in order
line 5 to confirm completion of the mitigation projects, and may collect
line 6 data relating to any other factors necessary to allow the board to
line 7 conduct a longitudinal study of the effectiveness of the mitigation
line 8 measures to prevent damage during catastrophes.
line 9 (e) The board may develop and offer additional grants or rebates
line 10 pursuant to subdivision (c) that are designed to decrease risk of
line 11 loss from wildfire or earthquake-related fire.
line 12
line 13 Chapter 4. Disaster Mitigation Funding
line 14
line 15 17020. The board shall annually distribute money from the
line 16 Prepared California Disaster Mitigation Fund to the state agencies
line 17 listed in this section, as it deems appropriate, based on the disaster
line 18 mitigation needs of the state. At a minimum, the board shall
line 19 annually distribute the following sums of money:
line 20 (a) At least 20 percent to the Department of Forestry and Fire
line 21 Protection for purposes of the local assistance grant program for
line 22 fire protection activities pursuant to Section 4124.5 of the Public
line 23 Resources Code, provided that only local agencies shall be eligible
line 24 for grants made with these funds.
line 25 (b) At least 20 percent to the California Earthquake Authority
line 26 for purposes of awarding grants pursuant to the Earthquake Brace
line 27 and Bolt program.
line 28 (c) At least 20 percent to the Department of Water Resources
line 29 for purposes of the Delta Levees Special Flood Control Projects
line 30 Program, the Small Communities Flood Risk Reduction Program,
line 31 the Flood Emergency Response Projects Grant Program, and the
line 32 Local Levee Assistance Program.
line 33 (d) At least 20 percent to the board to be awarded pursuant to
line 34 the Prepared California Disaster Mitigation Program for purposes
line 35 of grants to homeowners for fire-related disaster mitigation
line 36 purposes.
line 37 (e) Up to 5 percent to the board for operating expenses, and to
line 38 administer the Prepared California Disaster Mitigation Program,
line 39 including advertising the availability of grants and rebates to
line 40 homeowners and fulfilling the board’s mitigation study obligations.
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line 1 17021. The Department of Forestry and Fire Protection and
line 2 the board shall do both of the following:
line 3 (a) Prior to the annual distribution of funds pursuant to
line 4 subdivision (a) of Section 17020, agree on the wildfire mitigation
line 5 projects to be funded, with an emphasis on protecting vulnerable
line 6 populations. The Department of Forestry and Fire Protection shall
line 7 consider socioeconomic characteristics of the communities to be
line 8 protected, including data on poverty levels, residents with
line 9 disabilities, language barriers, residents over 65 years of age or
line 10 under 5 years of age, and households without a car.
line 11 (b) Develop a periodic reporting agreement for the grant funds
line 12 awarded pursuant to subdivision (a) of Section 17020 that requires
line 13 the Department of Forestry and Fire Protection to report
line 14 information sufficient to allow the board to study wildfire
line 15 mitigation effectiveness, including all of the following:
line 16 (1) Information on the types and locations of wildfire mitigation
line 17 projects.
line 18 (2) Information on the damage caused by wildfires in areas
line 19 where mitigation efforts have occurred.
line 20 (3) Other information the board finds necessary to study wildfire
line 21 mitigation effectiveness.
line 22 17022. The California Earthquake Authority and the board
line 23 shall do all of the following:
line 24 (a) Prior to the annual distribution of funds pursuant to
line 25 subdivision (b) of Section 17020, agree on the earthquake
line 26 mitigation projects to be funded, with an emphasis on protecting
line 27 vulnerable populations. The authority shall consider socioeconomic
line 28 characteristics of the communities to be protected, including data
line 29 on poverty levels, residents with disabilities, language barriers,
line 30 residents over 65 years of age or under 5 years of age, and
line 31 households without a car.
line 32 (b) Develop a periodic reporting agreement for the grant funds
line 33 awarded pursuant to subdivision (b) of Section 17020 that requires
line 34 the authority to report information sufficient to allow the board to
line 35 study earthquake mitigation effectiveness, including all of the
line 36 following:
line 37 (1) Information on the types and locations of earthquake
line 38 mitigation projects.
line 39 (2) Information on the damage caused by earthquakes in areas
line 40 where mitigation efforts have occurred.
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SB 292 — 25 — D-25
line 1 (3) Other information the board finds necessary to study
line 2 earthquake mitigation effectiveness.
line 3 (c) Develop and propose to the Legislature additional
line 4 cost-effective earthquake retrofit grant or low-cost loan programs
line 5 for homeowners requiring seismic retrofit but who do not qualify
line 6 for the Earthquake Brace and Bolt program, including owners of
line 7 mobilehomes and condominiums, and for small businesses, as
line 8 defined in subparagraph (A) of paragraph (1) of subdivision (d)
line 9 of Section 14837 of the Government Code, that own real property.
line 10 17023. The Department of Water Resources and the board shall
line 11 do both of the following:
line 12 (a) Prior to the annual distribution of funds pursuant to
line 13 subdivision (c) of Section 17020, agree on the flood mitigation
line 14 projects to be funded, with an emphasis on protecting vulnerable
line 15 populations. The Department of Water Resources shall consider
line 16 socioeconomic characteristics of the communities to be protected,
line 17 including data on poverty levels, residents with disabilities,
line 18 language barriers, residents over 65 years of age or under 5 years
line 19 of age, and households without a car.
line 20 (b) Develop a periodic reporting agreement for the grant funds
line 21 awarded pursuant to subdivision (c) of Section 17020 that requires
line 22 the Department of Water Resources to report information sufficient
line 23 to allow the board to study flood mitigation effectiveness, including
line 24 all of the following:
line 25 (1) Information on the types and locations of flood mitigation
line 26 projects.
line 27 (2) Information on the damage caused by flooding in areas
line 28 where mitigation efforts have occurred.
line 29 (3) Other information the board finds necessary to study flood
line 30 mitigation effectiveness.
line 31
line 32 Chapter 5. Reporting
line 33
line 34 17030. The Department of Insurance shall collect data regarding
line 35 the availability of insurance in high-risk fire areas and report that
line 36 data to the board on a periodic basis.
line 37 17031. The board shall prepare a report to be submitted to the
line 38 Legislature on or before January 1, 2021, and annually thereafter,
line 39 that includes at least all of the following:
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line 1 (a) A summary of the amounts of the grants and rebates awarded
line 2 pursuant to the Prepared California Disaster Mitigation Program
line 3 and a summary of the mitigation measures implemented with those
line 4 grants and rebates. The summary shall also include a discussion
line 5 of any new grants or rebates under development.
line 6 (b) A summary of the mitigation measures funded pursuant to
line 7 Section 17020, and an analysis of the effectiveness of those
line 8 mitigation measures in preventing losses from wildfires,
line 9 earthquakes, and floods, if applicable, given the types and locations
line 10 of natural disasters.
line 11 (c) A summary of known existing mitigation discounts offered
line 12 by residential property insurers.
line 13 (d) Recommendations for additional earthquake retrofit grant
line 14 program proposals pursuant to subdivision (c) of Section 17022
line 15 to augment the Earthquake Brace and Bolt program.
line 16 17032. On or after January 1, 2022, the board shall contract
line 17 with the California State Auditor’s Office to conduct an audit of
line 18 the Prepared California Disaster Mitigation Board’s operations
line 19 from inception to December 31, 2021, inclusive. The audit shall
line 20 provide an independent assessment of the performance and
line 21 management of the board and of the Prepared California Disaster
line 22 Mitigation Program. The board shall fund the audit out of its
line 23 operating expense budget pursuant to subdivision (e) of Section
line 24 17020. A copy of the audit shall be submitted to the board and to
line 25 the Legislature, on or before January 1, 2023.
line 26 17033. (a) The Department of Insurance and the board shall
line 27 develop an information sharing agreement to allow the board to
line 28 collect data on losses caused by fire, earthquake, and flood in order
line 29 to study mitigation efforts and insurer loss experience.
line 30 (b) The board shall continuously study the data compiled under
line 31 this section and the data compiled by the Department of Forestry
line 32 and Fire Protection pursuant to Section 17021, the data compiled
line 33 by the California Earthquake Authority pursuant to Section 17022,
line 34 the data compiled by the Department of Water Resources pursuant
line 35 to Section 17023, and the data compiled by the board pursuant to
line 36 subdivision (d) of Section 17012, including the longitudinal
line 37 analyses of the effectiveness of mitigation measures to prevent
line 38 loss.
line 39 (c) The board shall prepare and submit a report to the Legislature
line 40 on or before January 1, 2024, that contains recommendations for
97
SB 292 — 27 — D-27
line 1 model homeowners insurance discounts based on the risk
line 2 mitigation measures that the board has determined reduce loss
line 3 based on its studies conducted pursuant to this division.
line 4 (d) The board shall publish or maintain the data supporting the
line 5 recommendations made pursuant to subdivision (c) in such a way
line 6 as to be easily accessible to insurers for the purpose of ratemaking
line 7 and mitigation discount development. All data made available
line 8 shall comply with the privacy requirements of the Insurance
line 9 Information and Privacy Protection Act (Article 6.6 (commencing
line 10 with Section 791) of Chapter 1 of Part 2 of Division 1).
line 11 17034. The board may contract with private firms and public
line 12 universities, as necessary, to study mitigation efforts and complete
line 13 the data analysis required by this division.
line 14 17035. All reports required to be submitted to the Legislature
line 15 pursuant to this division shall be submitted in compliance with
line 16 Section 9795 of the Government Code.
O
97
— 28 — SB 292 D-28
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nm SAcRAMENro BEE ~IMPACT2020
-1!!1 t. THE SACRAMENTO BEE
[ CAPITOL ALERT I
Capitol Alert
California wants to get fire coverage for
burned-out towns. Here's why watchdogs are
worried
IY MACKENm HAWKINS
JUNE 10, 2D200S:OOAM, UPDATED JUNE 11,2020 01:26PM
California Insurance Commissioner Ricardo Lara holds a town hall meeting in Grass Valley, Aug. 22, 2019, to
discuss high rates of non-renewals and large rate increases to fire insurance in affected communities.
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"This bill couldn't come at a worse time," Insurance Commissioner Ricardo Lara said
at a June 8 press conference. "It will only increase costs on communities already
under economic stress and with record unemployment levels. It would be
devastating."
Here's a look at the new bill:
STEADY RATE INCREASES
Paradise, Santa Rosa, Malibu: The past few years have been particularly painful.
Californians filed $25 billion in wildfire insurance claims in 2017 and 2018.
Lara has approved over 200 rate increases since 2018 after carriers petitioned for
rate hikes, according to his office.
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But insurers are still retreating from fire-prone, high-risk markets. Those that
remain are charging double and triple what they did just a few years ago. Richard
Harris of Harris Insurance Services, an independent agency in Grass Valley, has
quoted $3,600 plans for customers who used to pay just $1,200, he told The
Sacramento Bee last year.
With private insurance no longer a viable option, many homeowners are forced to
turn to FAIR, the state's lender oflast resort. FAIR, which was established by the
Legislature but is privately run and funded by insurers, offers only bare-bones
coverage to a risky portfolio of customers. Its rates dwarf the private market's,
sometimes by three times.
For Renee Asmus in Nevada City, FAIR's figure was $2,950 a year, as compared to her
previous, private-market rate of $1,200, she told The Sacramento Bee last year.
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Lara has issued a statewide moratorium banning carriers from canceling
homeowners' coverage in areas struck by the 2019 wildfires. It doesn't apply to 2017
and 2018 disaster victims.
WHAT•s IN THE NEW BILL?
Under current law-established in 1988 by Proposition 103-insurance companies
must seek prior approval for rate increases over 7 percent by using a predetermined
formula. They also have to demonstrate that increases are not excessive, inadequate
or unfairly discriminatory and that they don't violate any other Prop 103 provisions.
The insurance commissioner has 180 days to act on an application and can initiate a
review of existing rates. If insurance companies can't stay financially solvent with
commissioner-approved rates, they can exit high-risk markets, as they have in fire-
prone areas over the past several years.
Insurance advocacy groups describe AB 2167 and SB 292 as a compromise that will
bring coverage back to these communities. In exchange for rate formulas that reflect
the full costs of writing high-risk plans, insurers will reenter abandoned markets at
a penetration rate that is 85 percent of their statewide rate, provided that this rate
does not make the companies insolvent by over-concentrating plans in high-risk
areas.
The new model uses Insurance Market Action Plans (IMAPs), which are county-
specific rate proposals that aim to distribute risk across the high-risk pool. The
insurance commissioner would have 120 days to approve IMAP applications in a
process that separates rate approval from other "contested issues" that don't pertain
specifically to excessive or discriminatory increases.
The bills also create new standards to justify rate increases. The Senate bill would
replace the current formula with a probabilistic risk assessment model. The
Assembly bill allows insurers to seek "cost-based" rates that industry experts say
reflect the full costs of coverage.
Those costs include rate hikes -in some cases this year, up to 70 percent -from
insurance companies' own carriers, known as re-insurers. Under Prop 103,
insurance companies are not allowed to pass those higher costs, which are not
subject to state regulation, onto homeowners.
WHY DO INSURANCE WATCHDOGS OPPOSE IT?
Lara called the proposal moving through the Legislature an "insurance industry
wish list."
Lara said in the news conference that the bill significantly reduces oversight by fast-
tracking the review process and allowing insurers to justify their increases based on
the reinsurance market, over which his department has no control. He also laid into
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the proposed rate formula, calling the bill an unnecessary "black box" proposal that
tries to fix a well-functioning system.
Consumer Federation of California Executive Director Richard Holober said that the
expedited review process effectively shuts consumer voices out of the conversation
by relegating all non-rate issues to a separate approval process.
But Personal Insurance Federation of California President Rex Frazier countered
that consumers still have plenty of opportunity to raise their concerns over a four-
month approval process, noting that the bill maintains the commissioner's authority
to reject any proposal.
As for whether insurance companies will actually write plans in high-risk areas,
Harvey Rosenfield of Consumer Watchdog-which authored Prop 103-expressed
his concerns that the legislation's language has no teeth.
The bill allows insurers to fall short of 85 percent market penetration to prevent
insolvency, and Rosenfield worries that companies -which he says would no longer
be bound by Prop 103 definitions under the new regulatory system-will be free to
define that threshold themselves.
But Frazier argues that insurance companies shouldn't be forced to oversaturate to
the point of financial self-destruction. By offering a middle ground-one that
requires reentry but adjusts rates accordingly-he says that the legislative package
will bring options to consumers who currently face a bleak insurance market.
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MAY 1 8, 2020 8:31 AM
May 4, 2020
The Honorable Tom Daly, Chair
Assembly Insurance Committee
1020 N St. Room 369
Sacramento, CA 95814
RE: AB 2167 (Daly) - OPPOSED
Dear Chairman Daly:
Consumer Watchdog is OPPOSED to AB 2167, as it is unnecessary and does nothing to
address climate change.
In 1988, California voters passed Proposition 103 to require insurance companies to open
their books to public scrutiny and justify homeowners and other forms of property-casualty
insurance before insurance companies can raise insurance rates. AB 2167 proposes to
override Proposition 103’s statutory protections against excessive and unnecessary rate
increases. AB 2167 would allow insurance companies to raise homeowners’ insurance
rates for all Californians – at a time when they can least afford it.
Moreover, the Insurance Commissioner already has voter authority to establish an
“Insurance Market Action Plan” – the ostensible purpose of AB 2167.
Indeed, AB 2167 is an impermissible attack on Proposition cloaked in proclamations
about climate change and wildfires. When they passed Proposition 103, the voters barred
the Legislature from amending the initiative unless the amendment furthers the purposes
of Proposition 103. AB 2167 does not further the purposes of Proposition 103, but rather
undermines it. It must be rejected.
Proposition 103’s Protections
During the 1970s and 1980s, insurance companies were free to charge whatever they
wanted for insurance. As a result, California’s insurance marketplace was rocked with
massive swings in the price of home, auto and business insurance premiums that
destabilized the economy and created enormous hardship for consumers and
businesses. Additionally, insurance companies were free to engage in blatantly
discriminatory tactics that punished entire communities.
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The voters acted when the Legislature did not. As noted above, Proposition 103 requires
any insurance company which seeks to change its rates to submit a rate application to
the Insurance Commissioner, and receive the Commissioner’s approval for it prior to its
use. (Insurance Code section 1861.01 (c).) The rate application must justify the requested
rate by showing that it complies with a regulatory formula, issued by the Commissioner
that prevents the insurance company from charging rates that are “excessive, inadequate,
unfairly discriminatory, or otherwise in violation of” Proposition 103’s protections.
(Insurance Code section 1861.05 (a)). Discriminatory actions targeting consumers or
communities are unlawful. The rate approval process is subject to other Proposition 103
protections. All information submitted by an insurance company to justify a change in its
rates must be made available to the public (Insurance Code section 1861.07); and
California consumers may request a public hearing on a rate request. In cases where an
insurance company seeks to raise rates by more than 7%, a public hearing is mandatory.
The law requires a 180-day review period, but allows extensions, which are often
requested by insurance companies. (Insurance Code section 1861.05(c), (d).) Hearings
are governed by state laws to ensure fundamental fairness and due process for
consumers and insurance companies alike. (Insurance Code section 1861.08.) To ensure
that the law was fully enforced, the voters made the commissioner an elective post and
accorded the commissioner with full authority to implement the law. (Insurance Code
section 12979.) This authority has been upheld by the California Supreme Court and other
courts against many legal challenges by the insurance industry.
AB 2167 Dismantles Proposition 103’s Protections
AB 2167 explicitly overrides the regulation of rates mandated by the voters:
• Proposed Section 10109.1 creates a new system to replace Insurance Code section
1861.05. It authorizes an insurance company to submit an “Insurance Market Action Plan”
that allows the company to seek “adequate rates” and contains a plan to “maintain the
insurer’s solvency.” What do these terms mean? Section 10109.3 states that rates must
be “actuarially sound”: this is industry jargon for deregulation, since it would allow
insurance company actuaries to substitute their judgment for the Insurance
Commissioner’s. That is how California insurance law was interpreted prior to the
passage of Proposition 103.
• Proposed section 10109.5 (a)(1) mandates an entirely different formula for setting rates.
Sections 10109.5 (a)(2) and 10109.6 would allow insurance companies to pass through
to consumers the costs of the reinsurance they buy. The Proposition 103 system does
not allow insurance companies to do so, because the rates charged by reinsurance
companies are not regulated, and in fact many reinsurance companies are subsidiaries.
• AB 2167 requires rates to be approved even if the rate violates other provisions of
Proposition 103. (Compare proposed Section 10109.3 with Section 1861.05, which bars
rates “otherwise in violation of” Proposition 103.) Indeed, the bill explicitly requires the
Commissioner to set aside any “contested issue” “other than a rate calculation” while an
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insurance company does not have to comply with its “commitments” under the bill if it
doesn’t agree with the Commissioner (Section 10109.7).
• Proposed section 10109.5 requires the Commissioner to give these new IMAP
applications “expedited review.” Instead of a 180-day review process, AB 2167 would
require the Commissioner to fast-track review within 120 days.
In short, AB 2167 would remove Proposition 103’s protections against unjustified rate and
insurance company profiteering. And AB 2167 limits the Commissioner’s ability to prevent
insurance companies from engaging in exactly the kind of underwriting and other
insurance company abuses that are plaguing Californian homeowners.
Notwithstanding, AB 2167’s sprawling preamble, the bill does nothing to address climate
change, does not require insurance companies to renew homeowners’ policies or protect
communities in any way against wildfire – or the post-wildfire claims and coverages
abuses that have prevented many Californians from rebuilding their homes. AB 2167 is
just another attempt by the insurance industry to escape the accountability the voters
imposed.
The Commissioner Already Has Emergency Authority to Establish IMAPs.
When they enacted Proposition 103, the voters understood that insurance companies
might periodically threaten to “leave the state” or discriminate against certain communities
by refusing to renew policies. Proposition 103 addressed this issue by authorizing the
Insurance Commissioner to establish an IMAP to protect the market against such threats:
Emergency Authority
1861.11. In the event that the commissioner finds that (a) insurers have
substantially withdrawn from any insurance market covered by this article,
including insurance described by Section 660, and (b) a market assistance plan
would not be sufficient to make insurance available, the commissioner shall
establish a joint underwriting authority in the manner set forth by Section 11891,
without the prior creation of a market assistance plan.
As the California Supreme Court noted, “section 1861.11 ‘recognizes the possibility that
insurers may withdraw from some insurance markets’ by authorizing the commissioner,
in event of substantial withdrawals, to establish a market assistance plan or joint
underwriting authority.” (Travelers Indemnity Co. v. Gillespie, 50 Cal.3d 82, 105.)
AB 2167 is not necessary.
AB 2167 Does Not Further the Purposes of Proposition 103.
Proposition 103 contained the following limitation on the power of the Legislature: “The
provisions of this act shall not be amended by the Legislature except to further its
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purposes by a statute passed in each house by roll call vote entered in the journal, two-
thirds of the membership concurring[.]”
As the California Supreme Court explained in invalidating another industry sponsored bill
to exempt certain insurance companies from Proposition 103:
[T]he voters have the power to decide whether or not the Legislature can amend
or repeal initiative statutes. This power is absolute and includes the power to
enable legislative amendment subject to conditions attached by the voters.
(Amwest Surety Ins. Co. v. Wilson, 11 Cal.4th 1243, 1251 (1995) (italics in
original)).
The Supreme Court made clear that it would not simply defer to the Legislature’s
determination that an amendment to Proposition 103 “furthered its purposes.”
In The Foundation for Taxpayer and Consumer Rights v. Garamendi (2005) 132
Cal.App.4th 1354, the Court of Appeal reviewed an amendment sponsored by Mercury
Insurance to modify the Commissioner’s authority to regulate auto insurance premiums.
The Court said:
In enacting Sen. Bill 841, the Legislature sought to override the Insurance
Commissioner's authority to set rates and premiums for automobile insurance. …
In providing for an elected rather than appointed commissioner, the voters made
the Insurance Commissioner responsive to the voters, not the Legislature. Under
Proposition 103, therefore, it is the Insurance Commissioner rather than the
Legislature that is vested with ratemaking authority subject to the appropriate
ratemaking process. (Id. at 1372.)
AB 2167 proposes an unlawful usurpation of the authority California voters have given
the Insurance Commissioner.
The insurance industry has provided no evidence that the regulatory structure created by
the voters is not working. The industry still has all their justifiable requests for rate
increases approved by the Insurance Commissioner. Therefore, there is no justification
for this latest attempt to eliminate the consumer protections from an over-reaching
insurance industry that the public voted for in Proposition 103.
Accordingly, Consumer Watchdog respectfully requests a “NO” vote on AB 2167.
Best regards,
Harvey Rosenfield, Founder Michael Mattoch, JD, LLM, MBA
Counsel & Advocate
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RICARDO LARA
CALIFORNIA INSURANCE COMMISSIONER
CALIFORNIA DEPARTMENT OF INSURANCE
PROTECT • PREVENT • PRESERVE
300 Capitol Mall, 17th Floor
Sacramento, California 95814
Tel: (916) 492-3500 • Fax: (916) 445-5280
May 5, 2020
The Honorable Tom Daly
Chair, Assembly Insurance Committee
1020 N Street, Room 369
Sacramento, CA 95814
RE: Assembly Bill 2167 (Daly and Cooley) – OPPOSE
Dear Assembly Member Daly,
I write to respectfully inform you that I OPPOSE your Assembly Bill 2167, as amended May 4, 2020.
This bill would establish the “Insurance Market Action Plan” (IMAP) Program that essentially allows an
insurer to file an IMAP with and require expedited approval from the Insurance Commissioner for rate
flexibility if the insurer commits to issuing/renewing more homeowner’s policies in high risk counties, as
specified. The creation of this program would severely harm consumers by attempting to amend and
circumvent a well-established rate approval process that is reasonably fair, inclusive, and transparent for
all parties involved.
Over the past year, I have heard a consistent yet dire message from local businesses, leaders, and
homeowners that the combination of increasing insurance premiums and non-renewals from insurance
companies is threatening to disrupt real estate markets, undermine local property values, and unravel
the fabric of local communities. Since the devastating 2017 fires, the California Department of Insurance
(Department) has received more than 220 homeowner rate filing increases and seen non-renewals
increase by thousands across the wildland urban interface. No community is immune, and I have
personally met with thousands of residents from 34 counties since taking office, including in Calaveras,
El Dorado, Fresno, Los Angeles, Placer, Riverside, San Bernardino, Santa Clara, Solano, Sonoma, and
Tuolumne. Insurance companies increasing rates and non-renewing their policyholders, many of whom
have loyally paid their premiums to their insurance company for many years without any claims, seems
especially unfair when there is neither a mandate for guaranteed insurance coverage, nor consideration
for pre-fire mitigation or “fire hardening” that homeowners and local leaders have undertaken to protect
against loss due to wildfires. Furthermore, this bill will hurt homeowners, hard-working families, and
businesses at a time during the extraordinary COVID-19 pandemic when they cannot continue to afford
premium increase after premium increase. Given the unknown ramifications of this pandemic for the time
ahead, now is not the time to weaken long-standing consumer protection laws in place today.
AB 2167 seeks to amend significant cornerstone provisions of Proposition 103 in a way that weakens
existing important consumer protections and discourages consumer participation in the process. This bill
lacks clear benefits to consumers. Questions to ask proponents of this measure include: How will this bill
make insurance more affordable? How will this bill address the prevalence of underinsured homeowners?
Why is 85% an appropriate threshold for insurers and how will this increase the number of policies written
in the wildland urban interface?
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Assembly Bill 2167 (Daly and Cooley) – OPPOSE
May 5, 2020
2
As you know, Proposition 103, passed by California voters in November 1988, instituted a system of prior
rate approval that requires every property and casualty insurer that wishes to change its rates in California
to obtain the Insurance Commissioner’s prior approval. Thus, every insurer that wishes to change the
rates that it charges in California must first submit a prior approval application to the Insurance
Commissioner, who is charged with ensuring that no rate shall be approved or remain in effect which is
excessive, inadequate, unfairly discriminatory, or otherwise in violation of the Insurance Code. Based
upon the information provided by the insurer, the Insurance Commissioner applies ratemaking formulas
to determine the minimum and maximum permitted earned premium, and approves the rate if it falls
between them, as specified in existing ratemaking regulations. California voters also cautioned that the
provisions of Proposition 103 shall not be amended by the State Legislature except to further its purposes
by a statute passed in each house with two-thirds of the membership concurring.
As proposed, AB 2167 would do the following:
• Create a “fast track” around the current established decades-long Proposition 103 rate
approval process at the Department without clear evidence that the existing process does
not work. There has not been clear evidence presented to the Department that there is a major
problem with the current ratemaking process. As a result, the Department has major concerns
about amending the current ratemaking process as outlined by your bill, which only serves to set
a precedent that chips away at property and casualty ratesetting protection under the Insurance
Commissioner’s authority in Proposition 103.
• Allow an insurer to compel expedited approval from the Insurance Commissioner for rate
flexibility, if the insurer commits to issuing or renewing more homeowner’s policies in
high risk counties, which could lead to excessive rates for consumers without any
guarantee of increased insurance availability. Expedited reviews increase the chances that
something important in the review process gets overlooked and waiving actuarial documentation
leads to an increased chance of excessive rates being initially filed and carried forward leading
to excessive IMAP rates overtime.
• Circumvent the authority of the Insurance Commissioner and existing regulations when
determining whether reinsurance should be included as a factor in setting rates. For more
than 30 years, the Insurance Commissioner’s regulations implementing the “excessive,
inadequate or unfairly discriminatory” prohibition have excluded from the ratemaking formula for
most insurance lines any pricing for reinsurance costs, which are unregulated by the Department
because those costs can be “gamed.” Reinsurance is a complex transaction typically covering
multiple lines of insurance and/or multiple states and exposures such that parsing out costs
specific to California homeowner expenses may be difficult if not impossible. As a result,
ratemaking is required to be performed on a direct basis. Furthermore, passing through an
insurer’s reinsurance premium costs as proposed in this bill would ultimately be very costly for
consumers, especially during these unprecedented times with the COVID-19 pandemic.
• Circumvent the authority of the Insurance Commissioner and existing regulations for
regulating the use of “complex catastrophe models” when projecting future losses. It is
unclear what criteria define a complex catastrophe model and who would determine the best
scientific information available when assembling and applying these models. Would there be an
assessment of accuracy or consistency? By disregarding the decades-old formulaic ratemaking
regulations which properly limit the use of modeled losses, it does not seem likely that this will
further the purpose of Proposition 103, nor would it benefit consumers, increase California’s
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Assembly Bill 2167 (Daly and Cooley) – OPPOSE
May 5, 2020
3
availability of insurance, and prevent unfair discrimination of pricing or unjustified regional
subsidies in high-risk areas.
• Weaken consumer participation in the ratemaking process by restricting intervenors’
broad power to enforce any provision of Proposition 103 by limiting their ability to
participate in the process to rate calculation issues only. Proposition 103 authorized a
process for consumer participation in the administrative process in any proceeding for setting
insurance rates, and permitted consumer intervenors to recover advocacy and witness fees and
expenses under certain circumstances. The success of Proposition 103 in stabilizing and
reducing insurance rates is attributable in no small part to consumer participation. Consumers
have repeatedly made substantial contributions to the decision making process, which have led
to better decisions that ultimately save money for consumers. As a result, weakening consumer
participation and limiting intervenors’ ability to participate in the Department’s rate approval
process as proposed in this bill is contrary to the goal of fostering consumer participation in the
administrative ratesetting process and does not further the purpose of Proposition 103; instead,
it arguably does the exact opposite due to the importance of consumer intervention and the value
consumer groups add to the rate making process, which has been affirmed by the courts.1
Without evidence that the current ratemaking process does not work, I have tremendous concerns that
this bill unnecessarily amends the existing ratemaking process without any evidence that this new
process would change the risk profile, increase mitigation efforts and statewide availability, and prevent
unfair discrimination in pricing or unjustified regional subsidies in high-fire risk areas. This bill would
undoubtedly increase consumer rates over time while at the same time weakening consumer participation
in the process. I believe this bill does not further the purposes of Proposition 103, but would instead
weaken or remove already established ratemaking processes and procedures that have been in place
for more than 30 years to protect consumers from excessive, inadequate, and unfairly discriminatory
insurance rates.
For these reasons, I write to OPPOSE your Assembly Bill 2167. Please contact me or Michael Martinez,
Senior Deputy Commissioner and Legislative Director, at (916) 492-3565 if you have questions. Thank
you for your consideration of my significant concerns with your bill.
Sincerely,
RICARDO LARA
Insurance Commissioner
cc: The Honorable Ken Cooley
The Honorable Chad Mayes, Vice Chair, Assembly Committee on Insurance
Members, Assembly Committee on Insurance
Mark Rakich, Chief Consultant, Assembly Committee on Insurance
Paul Riches, Principal Consultant, Assembly Committee on Insurance
Bill Lewis, Consultant, Assembly Republican Caucus
Darci Sears, Policy Consultant, Office of the Assembly Speaker
Ronda Paschal, Deputy Legislative Secretary, Office of the Governor
Charlene Manning, Finance Budget Analyst, Department of Finance
1 See the California Supreme Court’s decisions in State Farm Mutual Automobile Insurance Co. v. Garamendi, 32
Cal.4th 1029, 1035 (2004) and Calfarm Ins. Co. v. Deukmejian, 48 Cal.3d 805, 836 (1989).See also Economic
Empowerment Foundation v. Quackenbush, 57 Cal. App. 4th 677, 686 (1997) and Association of California
Insurance Companies et al. v. Poizner 180 Cal.App.4th 1029, 1051-52 (2009).
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