Bill Text: CA AB2996 | 2023-2024 | Regular Session | Amended
Bill Title: California FAIR Plan Association.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced) 2024-04-25 - From committee: Do pass and re-refer to Com. on APPR. (Ayes 12. Noes 0.) (April 25). Re-referred to Com. on APPR. [AB2996 Detail]
Download: California-2023-AB2996-Amended.html
|
Amended
IN
Assembly
March 21, 2024 |
| Introduced by Assembly Member Alvarez |
February 16, 2024 |
LEGISLATIVE COUNSEL'S DIGEST
Until January 1, 2028, this bill would require the association to develop, maintain, and offer to sell basic property insurance common interest development association policies and commercial farming enterprise policies with specified policy limits. Within 30 days of the bill’s operative date, the bill would require the association to file a new or amended rate application consistent with this requirement
and develop and submit to the commissioner a plan for the equitable apportionment for common interest development associations with an interest in real or tangible personal property that are unable to procure basic property insurance through normal channels from an admitted insurer.
This bill, until January 1, 2028, would authorize a common interest development association to not make a diligent effort to obtain basic property insurance through normal channels from a licensed surplus line broker.
This bill would specify how the amount an insurer is assessed is to be determined and allocated. The bill would require the association to retain any excess assessment amounts remitted by an insurer and apply it to reduce future assessments, as specified. The bill would require a member insurer to recoup an assessment paid on or after January 1, 2025, through a surcharge on premiums charged on insurance policies within the line of
business for which the insurer was assessed, and would require the insurer to make specified disclosures regarding the surcharge. The bill would authorize the association to levy special bond assessments upon member insurers and
Digest Key
Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 63049.63 is added to the Government Code, to read:63049.63.
(a) Notwithstanding any other provision of this division, a financing of the costs of claims upon the request of the California FAIR Plan Association pursuant to Section 10094.3 of the Insurance Code shall be deemed to be in the public interest and eligible for financing by the bank, and Article 3 (commencing with Section 63040), Article 4 (commencing with Section 63042), Article 5 (commencing with Section 63043), Article 6 (commencing with Section 63048), and Article 7 (commencing with Section 63049) shall not apply to the financing provided by the bank to, or at the request of, the California FAIR Plan Association or the department in connection with the fund.The purposes of this chapter are to do all of the following:
(a)To assure stability in the property insurance market for property located in the State of California.
(b)To assure the availability of basic property insurance as defined by this chapter.
(c)To encourage maximum use, in obtaining basic property insurance, of the normal insurance market provided by admitted insurers regulated by the commissioner and licensed surplus line brokers.
(d)To provide for the equitable distribution among admitted insurers of the responsibility for insuring qualified property for which basic property insurance cannot be obtained through the normal insurance market by the establishment of a FAIR Plan (fair access to insurance requirements), an industry placement facility and a joint reinsurance association established by statute.
Unless the provision or context otherwise requires, the following definitions govern the construction of this chapter:
(a)“Association,” “industry placement facility,” or “facility,” means a joint reinsurance association, the California FAIR Plan Association, formed by insurers licensed to write and engaged in writing basic property insurance within this state to assist persons in securing basic property insurance and to formulate and administer a program for the equitable apportionment among insurers of basic property insurance.
(b)“Commissioner” means the Insurance Commissioner of this state.
(c)(1)“Basic property insurance” means
insurance against direct loss to real or tangible personal property at a fixed location in those geographic or urban areas, as designated by the commissioner, from perils insured under the standard fire policy and extended coverage endorsement, from vandalism and malicious mischief, and includes other insurance coverages as may be added with respect to that property by the industry placement facility with the approval of the commissioner or by the commissioner, but shall not include insurance on automobile risks, commercial agricultural commodities or livestock, or equipment used to cultivate or transport agricultural commodities or livestock.
(2)For the purposes of earthquake coverage that is provided as a component of basic property insurance, the association shall sell only the policy described in Section 10089. In force policies of basic property insurance that include earthquake coverage shall be renewed with the coverage specified in Section 10089, and the association shall comply with the notice requirements of paragraph (2) of subdivision (a) of Section 10086.
(3)For purposes of ensuring the availability of basic property insurance to common interest development associations, the association shall develop, maintain, and offer to sell basic property insurance common interest development association policies with limits on a per structure basis for each individual structure within the common interest development association as follows:
(A)Division I commercial property program combined coverage limits on a per structure basis of up to twenty million dollars ($20,000,000), for building coverage, business personal property coverage, and other associated coverages.
(B)Division II commercial multiperil businessowners insurance policies with combined coverage limits on a per structure basis of up to twenty million dollars ($20,000,000) for building coverage, business personal property coverage, and other associated coverages, plus additional limits of one million dollars ($1,000,000) per occurrence and three million dollars ($3,000,000) in the aggregate for liability coverage per policy, for total combined limits of up to twenty-three million dollars ($23,000,000).
(4)(A)For purposes of ensuring the availability of basic property insurance to commercial farming enterprises, the association shall develop, maintain, and offer to sell basic property insurance commercial farming enterprises policies with limits for each commercial farming enterprise as follows:
(i)Division I commercial property program combined coverage limits on a per structure basis of up to twenty million dollars ($20,000,000), for building coverage, business personal property coverage, and other associated coverages.
(ii)Division II commercial multiperil businessowners insurance policies with combined coverage limits on a per structure basis of up to twenty million dollars ($20,000,000) for building coverage, business personal property coverage, and other associated coverages, plus additional limits of one million dollars ($1,000,000) per occurrence and three million dollars ($3,000,000) in the aggregate for liability coverage per policy, for total combined limits of up to twenty-three million dollars ($23,000,000).
(B)For purposes of this paragraph, basic property insurance shall include commercial agricultural commodities.
(d)“Common interest development association” has the same meaning as “association” as defined in Section 4080 of the Civil Code.
(e)“Inspection bureau” means the organization or organizations designated by the association with the approval of the commissioner to make inspections to determine the condition of the properties for which basic property insurance is sought and to perform other duties as may be authorized by the association.
(f)“Premiums written” means gross direct premiums charged with respect to property in this state on all policies of basic property insurance and the basic property insurance premium components of all multiperil policies, less return premiums, dividends paid or credited to policyholders, or the unused or unabsorbed portions of premium deposits.
(g)“Insurer” means a person who undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event, and shall include
reciprocals and interinsurance exchanges.
(h)This section shall remain in effect only until January 1, 2028, and as of that date is repealed.
Unless the provision or context otherwise requires, the following definitions govern the construction of this chapter:
(a)“Association,” “industry placement facility,” or “facility,” means a joint reinsurance association, the California FAIR Plan Association, formed by insurers licensed to write and engaged in writing basic property insurance within this state to assist persons in securing basic property insurance and to formulate and administer a program for the equitable apportionment among insurers of basic property insurance.
(b)“Commissioner” means the Insurance Commissioner of this state.
(c)(1)“Basic
property insurance” means insurance against direct loss to real or tangible personal property at a fixed location in those geographic or urban areas, as designated by the commissioner, from perils insured under the standard fire policy and extended coverage endorsement, from vandalism and malicious mischief, and includes other insurance coverages as may be added with respect to that property by the industry placement facility with the approval of the commissioner or by the commissioner, but shall not include insurance on automobile risks, commercial agricultural commodities or livestock, or equipment used to cultivate or transport agricultural commodities or livestock.
(2)For the purposes of earthquake coverage that is provided as a component of basic property insurance, the association shall sell only the policy described in Section 10089. In force policies of basic property insurance that include earthquake coverage shall be renewed with the coverage specified in Section 10089, and the association shall comply with the notice requirements of paragraph (2) of subdivision (a) of Section 10086.
(d)“Inspection bureau” means the organization or organizations designated by the association with the approval of the commissioner to make inspections to determine the condition of the properties for which basic property insurance is sought and to perform other duties as may be authorized by the association.
(e)“Premiums written” means gross direct premiums charged with respect to property in this state on all policies of basic property insurance and the basic property insurance premium components of all multiperil policies, less return premiums, dividends paid or credited to policyholders, or the unused or unabsorbed portions of premium deposits.
(f)“Insurer”
means a person who undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event, and shall include reciprocals and interinsurance exchanges.
(g)This section shall become operative on January 1, 2028.
(a)Notwithstanding any other law, a common interest development association shall not be required to make a diligent effort to obtain basic property insurance through normal channels from a licensed surplus line broker.
(b)This section shall remain in effect only until January 1, 2028, and as of that date is repealed.
(a)Within 30 days after the effective date of this chapter, with the approval of the commissioner, all insurers licensed to write and engaged in writing in this state, on a direct basis, basic property insurance or any component of basic property insurance in multiperil policies, shall establish an industry placement facility, the California FAIR Plan Association, to formulate and administer a program for the equitable apportionment among insurers of basic property insurance that may be afforded to persons having an interest in real or tangible personal property who, after diligent effort, as specified in subdivision (a) of Section 10093 as limited by
Section 10093.1,
are unable to procure insurance through normal channels from an admitted insurer or a surplus line broker. Each insurer, as a condition of its authority to transact those kinds of insurance in this state, shall participate in an industry placement facility program in accordance with rules to be established by a governing committee, composed of nine insurers annually elected in the manner to be provided in the program. The governing committee shall also have as nonvoting members one representative of insurance agents, one representative of insurance brokers, one representative of surplus line brokers, and one representative of the public, each to be appointed by the Governor.
(b)The governing committee may establish separate classifications of written premiums for the purpose of equitable distribution, but shall not include premiums from automobile risks, commercial agricultural commodities or livestock, or equipment used to
cultivate or transport agricultural commodities or livestock.
(c)(1)The program may provide, with the approval of the commissioner, for assessment of all members in amounts sufficient to operate the facility, and may establish maximum limits of liability to be placed through the program, reasonable underwriting standards for determining insurability of a risk, and commission to be paid to the licensed producer designated by the applicant.
(2)The amount an insurer is assessed shall be based on the insurer’s proportion that its premiums written during the second preceding calendar year for that line of business bear to the aggregate premiums written by all insurers in the program for that line of business, excluding that portion of the premiums written attributable to the operation of the association, so that the assessment owed equals the insurer’s market share of losses for that line of business.
(3)The amount an insurer is assessed shall also be bifurcated by line of business to reflect losses proportionate to that line of business so that an assessment to cover losses related to commercial property coverages are solely allocated to commercial lines of business and an assessment to cover losses related to residential property coverages are solely allocated to residential property lines of business.
(a)(1)The plan of operation adopted pursuant to subdivision (a) of Section 10095 shall require a member insurer to recoup an assessment paid by the insurer to the association pursuant to subdivision (c) of Section 10094, in the year following the assessment, through a surcharge on premiums charged for insurance policies within the line of business for which the insurer was assessed.
(2)Amounts recouped pursuant to paragraph (1) shall not be considered premiums for any other purpose, including the computation of gross premium tax or agents’ commission.
(b)(1)The amount of a surcharge shall be separately stated on either a billing or
policy declaration sent to an insured. The association shall determine the rate of the surcharge and the collection period for each line of business.
(2)The statement of the amount of a surcharge shall include the following description of the association and purpose of the surcharge:
“Companies writing property and casualty insurance business in California are required to participate in the California FAIR Plan Association. If the California FAIR Plan exhausts its operational funding, it is authorized to issue an assessment on each California-licensed insurance company to continue operations and settle unpaid claims through an assessment on each California-licensed insurance company for its fair share.
California law requires all companies to surcharge policies to recover these assessments. If your policy is
surcharged, ‘CA Surcharge’ with an amount will be displayed on your premium notice.”
(c)A member insurer shall file a report in accordance with the provisions of the plan of operation indicating the amount of surcharges it has collected.
(1)If a member insurer collects surcharges in excess of assessment charges paid in the preceding year, the insurer shall remit the excess to the association within 30 days after the association has determined the amount of the excess recoupment and given notice to the member insurer of that amount. The association shall retain the excess amount and apply it to reduce future assessments in the line of business for which the insurer was assessed and to reimburse insurers if their surcharges fail to cover the full amount of their assessments.
(2)If a member insurer collects surcharges that are less than what it paid in assessment charges paid in the preceding year, the insurer shall receive reimbursement from the association for the shortfall in surcharge collection.
(3)A member insurer may amend its reports indicating the amount of surcharges collected for the prior five years if it discovers there was an error in the original reports filed with the association.
(d)The plan of operation may permit a member insurer to omit collection of the surcharge from its insureds only if the expense of collecting the surcharge would exceed the amount of the surcharge.
(e)This section applies only to assessments paid on or after January 1, 2025.
(a)Notwithstanding subdivision (c) of Section 10095, the facility shall, pursuant to regulations adopted by the commissioner, provide for a method whereby insurers who voluntarily write basic property insurance or basic property insurance common interest development association policies on risks located in areas designated at the beginning of the policy period as brush hazard areas by the Insurance Services Office (ISO) or designated at the beginning of the policy period as high or very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection, or very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection pursuant to
Section 51178 of the Government Code will, to that extent, be proportionately relieved of the liability to participate in a plan adopted pursuant to this chapter. The facility shall, pursuant to regulations adopted by the commissioner, provide for a method whereby insurers who voluntarily write basic property insurance or business owners package insurance on risks located in areas designated as inner-city areas by the commissioner will, to that extent, be proportionately relieved of the liability to participate in a plan adopted pursuant to this chapter. This chapter does not preclude adoption of a plan or plans to allow proportionate credit for voluntary writings in other areas or for other classes of insurance.
(b)(1)The facility shall prepare and submit a report to the Governor, the commissioner, and the committees of the Senate and the Assembly having jurisdiction over insurance, identifying the credit for voluntary
writings submitted by licensees in the high and very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection, and the very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection pursuant to Section 51178 of the Government Code, in order to determine whether or not the designations are sufficient to effectuate the purposes of this section.
(2)The facility shall prepare and submit the report required by this subdivision three times, with the first report due on or before July 1, 2023, the second report due on or before July 1, 2025, and the third report due on or before July 1, 2027.
(a)Within 30 days after the effective date of this section, the association shall develop and submit to the commissioner a plan for the equitable apportionment among all insurers subject to Section 10094.2 and licensed to write and engaged in writing in this state, on a direct basis, basic property insurance, or any component of basic property insurance in multiperil policies of a program for basic property insurance, for common interest development associations with an interest in real or tangible personal property that, after diligent effort, as specified in subdivision (a) of Section 10093 as limited by Section 10093.1, are unable to procure basic property insurance for common interest development associations through normal channels from an admitted insurer.
(b)The commissioner shall take action on the plan specified in subdivision (a) within 15 days of its submission by the FAIR Plan.
(a)Within 30 days following the effective date of this section, the association shall file a new or amended rate application with the commissioner consistent with paragraph (3) of subdivision (c) of Section
10091 and subdivision (a) of Section 10094.3.
(b)This section shall remain in effect only until January 1, 2028, and as of that date is repealed.
(a)Within 90 days following the effective date of this section, the association shall file a new or amended rate application with the commissioner consistent with subdivision (a) of Section 10094.3.
(b)This section shall become operative on January 1, 2028.
(a)Notwithstanding any other limits on assessments, the association may levy upon member insurers special bond assessments in the amount necessary to pay the principal of and interest on the bonds, and to meet other requirements established by agreements relating to the bonds. The assessments shall be collected only from the member insurers providing insurance in the line of business for which the bonds are issued, and shall be applied in the same manner as separate assessments are used. Special bond assessments made pursuant to this section shall also be subject to the surcharges required by Section 10094.1.
(b)The association may request the issuance of bonds by the
California Infrastructure and Economic Development Bank pursuant to Section 63049.63 of the Government Code to ensure the solvency of the association. The bonds are to be paid from the special bond assessments assessed by the association for those purposes. Special bond assessments to repay bonds issued for payment of insurance benefits shall be assessed, to the extent necessary, for the respective line of business for which bonds are issued. It is a public purpose and in the best interest of the public health, safety, and general welfare of the residents of this state to provide for the issuance of bonds to pay claims under association policies.
(c)Notwithstanding any other law, after all bonds issued pursuant to this section have been redeemed, no further initial special bond assessments shall be levied or made.
Within 30 days following the effective date of this section, the association shall submit to the commissioner, for the commissioner’s review, a revised plan of operation, pursuant to its authority under subdivision (c) of Section 10091 and subdivision (c) of Section 10095, to increase the available coverage limits that the association offers under its Division I commercial property program and under its Division II commercial multiperil businessowners insurance policies from per location to per structure in order to ensure that common interest development associations have access to coverage against loss that is subject to regulation by the commissioner.
(a)(1)Rates for the FAIR Plan shall not be excessive, inadequate, or unfairly discriminatory, and shall be actuarially sound so that premiums are adequate to cover expected losses, expenses and taxes, and shall reflect investment income of the plan. If the plan returns premiums to members annually, the rates shall not include any component relating to surplus enhancements.
(2)If the FAIR Plan policy of a property owner would be subject to a brush surcharge solely because of an adjacent property owner’s failure to comply with applicable laws, ordinances, and regulations regarding brush clearance requirements, the surcharge shall instead be imposed on the policy of the adjacent property owner if the adjacent property is also insured through the FAIR Plan.
(3)(A)The Fair Access to Insurance Requirements Plan, an inspection, placement, and joint reinsurance facility program to support the availability where needed within California of basic property insurance, was established by law under the commissioner’s supervision to ensure that Californians, wherever they reside, maintain access to needed basic property insurance when other factors make accessing such insurance from admitted carriers difficult. The commissioner is the only public official with direct supervision of this program and the commissioner’s powers and responsibility is well-established, as follows:
(i)Subdivision (a) of Section 12921 provides that the commissioner shall perform all duties imposed upon the commissioner by this code and other laws regulating the business of insurance in this state, and shall enforce the execution of those laws.
(ii)Subdivision (b) of Section 1861.03 provides that various provisions of California law cannot be construed to prohibit insurer participation in any joint arrangement established by statute or the commissioner to assure availability of insurance.
(iii)Pursuant to Chapter 9 (commencing with Section 10090), the California FAIR Plan Association is established as a joint reinsurance association and basic property insurance inspection and placement plan to be overseen and subject to the commissioner.
(iv)Subdivision (a) of Section 1851 excepts reinsurance from its rating provisions, except for voluntary joint reinsurance or joint underwriting of the type described in Section 1856.
(B)(i)The commissioner shall use the full powers of their office to strengthen the California housing marketplace, including the development of more sustainable and affordable housing options and supporting active sales and refinancing activities by individual property owners, by accelerating the review and approval of admitted insurer rate filings seeking to recover their full costs for obtaining reinsurance as this protects Californians by supporting operation of the exempt statutory FAIR Plan to assure the maximum availability of basic property insurance subject to the commissioner’s direct oversight for Californians.
(ii)The commissioner shall use the full powers of their office to strengthen the California housing marketplace, including the development of more sustainable and affordable housing options and supporting active sales and refinancing activities by individual property owners, by accelerating the review and approval of FAIR Plan rate filings seeking to recover their full costs for obtaining reinsurance as this protects Californians by supporting operation of the exempt statutory FAIR Plan to assure the maximum availability of basic property insurance subject to the commissioner’s direct oversight for Californians.
(b)Rates for a policy of earthquake property insurance issued by the association shall
be established based on the best available scientific information for assessing the risk of earthquake loss. Factors that the association shall consider in adopting rates include, but are not limited to, the following:
(1)Location of the insured property and its proximity to earthquake faults and to other geological factors affecting the risk of earthquake.
(2)The soil type upon which the insured dwelling is built.
(3)Construction type of the insured dwelling.
(4)The presence of earthquake hazard reduction factors as defined in Section 10089.2.
(c)Notwithstanding Section 10097, all information considered by the association in establishing rates shall be public records.
(d)The classification system established by the association for policies of earthquake property insurance shall not be adjusted or tempered in any manner to provide rates lower than are justified for classifications presenting a high risk of loss, or higher than are justified for classifications presenting a low risk of loss.
The amendment of Section 10100.2 of the Insurance Code made by this act does not constitute a change in, but is declaratory of, existing law.
The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
