Insurers Back Revision to Homeowners Disclosure Inspired by 1991 Oakland Firestorm

The California Senate is poised to adopt an update to the disclosure notice insurers are required to provide at the inception of a policy to help homeowners decide on the amount of insurance to obtain.

The Senate Banking, Finance and Insurance Committee backed A.B. 2022 without opposition and sent it to the Senate consent calendar. It will likely be formally adopted soon after the chamber returns to session on Aug. 2, said Mark Sektnan, vice president of the Association on California Insurance Companies. The Assembly previously adopted the legislation in a unanimous vote.

California adopted the original legislation after the Oakland firestorm of 1991, which burned 1,600 acres, destroyed 2,900 structures, displaced 10,000 people and killed 25 in the Oakland area, according to a report from AIR Worldwide. The three-day conflagration resulted in an estimated $1.7 billion in insured property damage, according to the property claim services division of the American Insurance Services Group (BestWire, Jan. 29, 1993).

In the aftermath, controversies arose over who held responsibility for selecting an appropriate homeowners policy, Sektnan said. A 2008 Court of Appeals decision in Everett v. State Farm General Insurance Co. confirmed that responsibility rests with homeowners, as they pay the premium and have their property at stake, he said.

The legislative changes resulted in a disclosure notice that is shorter and more accessible to homeowners, both at the time a policy is initiated and in the event of a loss or catastrophe, according to an analysis prepared for the Senate committee. One new provision is an advisory for homeowners in an urban/rural interface zone, like much of the fire-engulfed 1991 area.

"It's mostly to improve the tools and information they need to make the right decision," Sektnan said. "It's in everyone's best interest."

The top five writers of homeowners multiperil insurance in California in 2009 were State Farm Group, with a 21.8% market share; Farmers Insurance Group, with 18.4%; Allstate Insurance Group, with 9.5%; California State Auto Group, with 6.4%; and Liberty Mutual Insurance Cos., with 5.2%, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)