Garamendi’s Homeowners’ Bill of Rights Moves Ahead

California Insurance Commissioner John Garamendi’s “Homeowners’ Bill of Rights” package is continuing to move through the California State Legislature. The four main measures have all moved out of their first house and will be heard in their next policy committee in mid-June. Garamendi is touting his legislative package as solutions to the problems some victims of the October wildfires have experienced. Insurers are concerned these measures will constrict an already hard market, but are working with the Commissioner and the authors to find common ground.

Insurers are moving closer to agreeing on amendments to three of the four bills moving in California. The industry has worked out language for AB 2199, authored by Assemblywoman Christine Kehoe (D-San Diego). This bill gives policyholders 12 months to rebuild following a fire or 24 months to rebuild following a major disaster. This measure also allows policyholders to receive full replacement costs if they decide to build a similar house on a site other than the insured premise. Many of the wildfire victims had concerns they did not have enough time to rebuild or wanted to sell their property and rebuild in another area. This measure clarifies that any future victims of fires will have adequate time to rebuild or will have the flexibility to build on another site.

Insurers are continuing to work on two other measures. AB 2962, authored by Assemblywoman Fran Pavely (D-Agoura Hills) allows insurance contracts to depreciate for labor in claims payment under Actual Cash Value (ACV) policies if the insurer provides full disclosure in their forms. Initially insurers had serious concerns over this bill because it prohibited the depreciation of labor under ACV policies. The original version would have forced insurers to pay full replacement costs for ACV policies. Working collaboratively with the author, the industry was able to work out amendments and retain the availability of a more affordable policy while providing consumers more disclosures.

Insurers are continuing to work out a balance to SB 1855 by Senator Dede Alpert (D-San Diego). This measure is intended to update the California Residential Property Insurance Disclosure law and educate policyholders about the types of coverage available to them. Insurers are trying to avoid passage of a disclosure law requiring notices so cumbersome and lengthy that customers would not read them. Final amendments have not been agreed to, but the industry is optimistic a compromise can be reached.

There are two measures moving that insurers may not find middle ground on. SB 1474 by Senator Martha Escutia (D-Whittier) prohibits insurers from underwriting based upon prior losses unless a policyholder has filed two claims in the prior three years. This is a version of a “take all comers – keep all takers” measure that would make it difficult for insurers to manage their businesses. It would not allow insurers to balance their book of business and manage the amount of risk they assume. The industry is working with the author but prospects for a compromise are remote.

A potential candidate for insurance commissioner in 2006, Senator Deborah Ortiz (D-Sacramento), is sponsoring a bill to ban the use of credit scoring. SB 1323 would prohibit insurers from using credit history or a credit score in the rating or underwriting of a homeowners policy. The insurance industry is opposed to banning an important underwriting tool, which provides customers with more choice in insurance products and helps the industry accurately assess risk. SB 1323 passed the Senate on May 18 by a partisan 22-13 vote. It is now awaiting action in the Assembly Insurance Committee.

While Commissioner Garamendi is not officially sponsoring this measure, he continues to express his opposition to the use of credit information in rating and underwriting. He has taken regulatory steps to hinder insurers who seek to use credit information in California homeowners insurance. Insurers continue to abide by the California Commissioner’s restrictions on the use of credit, but the industry remains opposed to statutory language banning its use. Insurers are actively opposing this bill and educating legislators about the model approved by the National Coalition of Insurance Legislators.

California is facing another dangerous fire season. Little has been done to mitigate the bark beetle infestation in Southern California which fueled the wildfires in 2003. Additionally, San Diego County voters rejected several ballot measurers on the March primary ballot which would have enhanced fire fighting capabilities. The insurance industry is working together to educate policy makers about what measures will assist future fire victims and those that will restrict an already hard insurance market. Regardless, homeowners insurance will continue to be a critical topic in the halls of the California State Legislature.

Nicole Mahrt is the director of public affairs in the western region for the American Insurance Association (AIA). AIA is a national advocacy trade association that represents property/casualty insurers who write all lines of coverage ranging from workers’ compensation, commercial liability to home and auto insurance.