SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No:
Author:
Version:
Urgency:
Consultant:
AB 1440
Nazarian
April 20, 2015
No
Erin Ryan
Hearing Date:
June 24, 2015
Fiscal:
Yes
Amended
Subject: Earthquake loss mitigation: grant programs.
SUMMARY Recognizes the California Residential Mitigation Program (CRMP), a joint
powers authority (JPA) created in 2012 by the California Earthquake Authority (CEA)
and Office of Emergency Services (OES) to provide grants to residential homeowners
for the purpose of defraying the cost of seismic retrofitting, among other purposes; and
requires, if the legislature appropriates funds, the CRMP to implement a grant program
and, on or after July 1, 2017, make grants that assist a qualifying owner of a singlefamily residential structure that defray the owner’s cost of seismic retrofitting of the
structure, as specified.
DIGEST
Existing law
1)
Provides that no policy of property insurance may be issued or delivered in this state
unless the insurer has been offered earthquake insurance (mandatory offer).
2)
Defines a residential property for purposes of the mandatory offer as individually owned
residential structure of not more than 4 dwelling units.
3)
Establishes the CEA, a privately financed, publicly managed entity to provide
residential earthquake insurance.
4)
Defines residential earthquake insurance as a policy insuring individually owned
residential structures with no more than four dwelling units.
5)
Establishes the Earthquake Loss Mitigation Fund (ELMF) within the CEA to
provide grants or loans to dwelling owners who wish to retrofit their homes.
(Insurance Code § 10089.37 et seq.)
6)
Allocates to the ELMF five percent of CEA’s investment income, or $5 million,
whichever is less, annually.
7)
Requires the OES to carry out a variety of duties with respect to emergency
preparedness, mitigation, and response activities in the state, including earthquake
education and preparedness activities.
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This bill
1) Makes legislative findings regarding the impact recent earthquakes have had on
increasing interest in mitigating the damage to residential homes from earthquakes,
the Earthquake Brace + Bolt (Brace + Bolt) program operated jointly by the CEA and
the OES, the low take-up rate for earthquake insurance, and the need to create and
fund a program to assist California homeowners with earthquake mitigation repairs.
2) Recognizes the CRMP, a JPA created in 2012 by the CEA and OES to provide
grants to residential homeowners for the purpose of defraying the cost of seismic
retrofitting, among other purposes.
3) Requires, if the legislature appropriates funds, the CRMP to implement a grant
program and, on or after July 1, 2017, make grants that assist a qualifying owner of
a single-family residential structure that defray the owner’s cost of seismic retrofitting
of the structure.
4) Requires an applicant for a grant to meet specified conditions, including:
a. The applicant is the owner of record, and lives in the structure to be
retrofitted;
b. The structure is a single-family, detached, residential building of not more
than 4 dwelling units;
c. The structure and work to be done meet eligibility requirements established
by the JPA.
5) Specifies the grant cannot exceed the lesser 75% of the qualifying retrofit, or $3,000.
6) Requires the CRMP governing board to adopt policies and procedures necessary to
implement this program.
COMMENTS
1.
Purpose of the bill According to the author, only 12% California homeowners have
earthquake insurance, but there are between 1.2 to 1.6 million pre-1940s homes
with so called "cripple walls," and homes on hillsides, and those with living space
over garages that are at serious risk in even a minor quake, let alone a major one.
California has an existing seismic mitigation incentive program called Brace + Bolt,
which is administered by the CRMP, but is limited to only 650 homes in the Bay
Area, LA County and Napa. The goal of this legislation is to expand on Brace +
Bolt and create a statewide earthquake retrofit program to cover tens of thousands
of more homes.
2.
Background Currently, fewer than 12% of California homeowners purchase
earthquake insurance, despite predictions that the state will experience a major
earthquake sometime in the next 30 years. The low frequency of earthquake
disasters, compared to other natural catastrophes, tends to shape the perception
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Page 3 of 4
that earthquake risk is much lower than it actually is, even in places where there
have been very deadly and damaging events like California. In addition,
earthquake insurance policies can be expensive and carry large deductibles,
making them unattractive to homeowners who are not mandated to carry such
coverage by their lenders.
Homeowners can greatly reduce their exposure to earthquake damage by taking
relatively simple, low cost steps to strengthen their structures to better withstand
earthquakes. An additional benefit to homeowners of seismic retrofitting is the
availability of discounts on earthquake insurance premiums as a result of the lower
risk of damage to their home.
In August 2011, the CRMP was established as a JPA entity by the CEA and OES
to carry out mitigation programs to assist California homeowners who wish to
seismically retrofit their houses. CRMP’s goal is to provide grants and other types
of assistance and incentives for these mitigation efforts. Brace + Bolt, the CRMP’s
first program launched in 2013, provides grants of up to $3,000 for homeowners
who have qualifying homes and meet specified building code requirements. The
cost of Brace + Bolt retrofits is coming in between $3,000 and $6,000 for the
single-family dwellings presently eligible—the cost seems to be lower in Southern
California than in the Bay Area. But the more complicated the retrofit (e.g., for
“soft-story” and hillside houses), the more expensive the project will be.
According to the CEA, 16 homes have qualified and completed retrofits under the
program, and 650 retrofits are planned in 2015. CEA estimates that there are
approximately 1.6 million owner-occupied houses in California that meet the
criteria of Brace + Bolt—1.2 million of those are in higher-hazard areas. Those
numbers do not include other, non-Brace + Bolt eligible homes that would benefit
from seismic retrofits.
Without any appropriation in the budget, this bill simply codifies the existing
CRMP. It is committee staff’s understanding that language that mirrors this bill and
AB 1429, also before this committee today, has been included in a budget trailer
bill, along with an appropriation to increase funding for CRMP to award earthquake
mitigation grants.
3.
Support According to the Insurance Commissioner, AB 1440 will expand on
Brace + Bolt and scale it into a statewide, sustainable earthquake retrofit incentive
program. United Policyholders supports AB 1440 because they encourage people
who live in earthquake country to protect their investment in their home by
retrofitting, buying earthquake insurance, and by setting aside funds to pay for
repairs below the deductible. They believe that providing incentives to
homeowners to retrofit in the form of monetary grants is good public policy.
4.
Opposition None received.
5.
Questions Without any appropriation, this bill simply codifies the existing CRMP,
already operating under existing authorities. Language that mirrors this bill and AB
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1429, also before this committee today, has been included in a budget trailer bill,
along with an appropriation to increase funding for CRMP to award earthquake
mitigation grants. Is this legislation necessary?
6.
Related Legislation
AB 1429 (Chiu) would require the CRMP to implement a grant program, on or after
July 1, 2017, for qualifying owners of multiunit residential structures that defrays
the owner’s cost of seismic retrofitting of the structure if the legislature
appropriates money for that purpose.
SB 602 (Monning) adds the CEA to the list of public entities authorized to utilize
property assessment districts, impose liens and issue bonds for the purpose of
creating a statewide earthquake mitigation assessment district to fund voluntary
residential seismic strengthening improvements.
AB 428 (Nazarian) would allow, for taxable years beginning on or after January 1,
2016, and before January 1, 2021, a tax credit under the Personal Income Tax
Law and the Corporation Tax Law in an amount equal to 30% of the qualified costs
paid or incurred by a qualified taxpayer for any seismic retrofit construction on a
qualified building, as defined.
POSITIONS
Support
California Department of Insurance (sponsor)
California Association of Realtors
City of West Hollywood
United Policyholders
Oppose
None received
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