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IIABCal-Opposed CEA Bill Hits Snags

SACRAMENTO, CA, May 16, 2019 -- A bill that would place a tax on most residential and commercial insurance policyholders in the aftermath of a catastrophic earthquake met a roadblock this week in the Senate Appropriation Committee.

SB 254, opposed by IIABCal, proposes to make a number of unprecedented changes to the Insurance Code that would adversely affect independent agents and brokers, surplus line brokers and their customers.

According to IIABCal Lobbyist John Norwood, who testified against the bill earlier this month, the California Earthquake Authority-sponsored bill would breach the walls separating CEA and non CEA insurers and policyholders, create cross subsidies, result in multiple assessments on policyholders, including most commercial insurance, impose assessments on lines of insurance never previously assessed like non-admitted insurers and impose assessments on surplus line brokers.

Following a grassroots campaign of IIABCal members earlier this month, the bill was sent to the Suspense File in Senate Appropriations Committee on Monday.  The bill remained stuck in the Appropriations Committee this week when it was turned into a two-year bill when the bill's author, Sen.Robert Hertzberg, was unable to fix the “new tax” designation. Hertzberg committed to not take the bill to the floor if it was still designated a tax.

Once the bill proceeds, if at all, it will be restricted to the CEA member companies, Norwood said, and there would be no assessments on clients of non-member companies and no assessments on non-admitted insurers.

Norwood testified before the Senate Insurance Committee last month on behalf of the IIABCal member agents and brokers who contacted their legislators on the committee to oppose the bill proposed by the CEA as a way to reduce its cost of reinsurance and use the savings from lower reinsurance costs to fund their brace and bolt program wherein they provide grants for homeowners in high earthquake prone areas to retrofit their homes.

According to the CEA, this is an innovative way to provide funding to proactively lower the damages from a mega earthquake by adding a layer of contingent assessment to the financial layer-cake supporting the Authority at a level where it there is actuarially less than a 1% chance an earthquake of the magnitude that would trigger the assessment would ever happen.

However, Norwood said agents and brokers do not buy into the idea that their clients should accept unprecedented changes that are potentially adverse on the theory that the triggering event for the assessments are so remote that is likely it will never happen.