Bill Text

Bill Information


PDF |Add To My Favorites |Track Bill | print page

SB-292 Wildfire risk modeling and mitigation.(2019-2020)

SHARE THIS:share this bill in Facebookshare this bill in Twitter
Date Published: 05/01/2020 09:00 PM
SB292:v97#DOCUMENT

Amended  IN  Assembly  May 04, 2020
Amended  IN  Assembly  June 17, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 292


Introduced by Senator Rubio
(Principal coauthor: Assembly Member Daly)
(Coauthor: Senator Jones)
(Coauthors: Assembly Members Cooley, Mayes, and Medina)

February 14, 2019


An act to add Division 6 (commencing with Section 17000) to the Insurance Code, relating to disaster mitigation, and making an appropriation therefor. Sections 10109.05, 10109.07, 10109.2, 10109.4, and 10109.8 to, and to add Article 2 (commencing with Section 10109.10) to Chapter 12 of Part 1 of Division 2 of, the Insurance Code, relating to insurance.


LEGISLATIVE COUNSEL'S DIGEST


SB 292, as amended, Rubio. Prepared California Disaster Mitigation Fund. Wildfire risk modeling and mitigation.
The Insurance Rate Reduction and Reform Act of 1988, an initiative measure enacted by Proposition 103, as approved by the voters at the November 8, 1988, statewide general election, prohibits specified insurance rates from being approved or remaining in effect that are excessive, inadequate, unfairly discriminatory, or otherwise in violation of the act. The act requires an insurer that wishes to change a rate to file a complete rate application with the Insurance Commissioner and deems the application approved 60 days after public notice of the application unless certain events occur, including that a consumer requests a hearing, or the commissioner determines to hold a hearing. The act requires hearings to be conducted pursuant to specified provisions of law governing administrative hearings.
Under existing law, the California FAIR Plan Association is a joint reinsurance association in which all insurers licensed to write basic property insurance participate in administering a program for the equitable apportionment of basic property insurance for persons who are unable to obtain that coverage through normal channels.
This bill would require the association, on or before January 31 and July 31 of each year, to submit a report to the commissioner that lists certain counties, according to specified population thresholds, in which the number of new residential property insurance policies issued by the FAIR Plan during the prior 6 months equals a certain percentage of the number of single family residences in that county. The bill would require a county listed on the report to be designated by the department as an insurance market protection (IMAP) eligible county under the IMAP program that would be established if AB 2167 of the 2019–20 Regular Session is enacted. The bill would authorize an insurer to submit an IMAP filing to the department for residential property insurance policies issued in an IMAP eligible county and would require the IMAP filing to set forth specified mitigation standards. The bill would require the Office of Planning and Research, on or before, January 1, 2023, to issue a report outlining the effectiveness of the IMAP program.
This bill would state the intent of the Legislature to establish a commission in state government consisting of the Insurance Commissioner, the State Fire Marshall, the Executive Director of the California Building Standards, and the Director of Emergency Services to, among other things, convene stakeholders to develop regionally specific community hardening standards that have the propensity for reducing loss due to wildfires. The bill would create the Catastrophic Modeling Advisory Committee to be chaired jointly by the Insurance Commissioner and the Director of Emergency Services, or their designees. The bill would prescribe the membership of the advisory committee and would require the advisory committee to, among other things, deliver to the Office of Emergency Services, on or before July 1, 2024, a comprehensive report detailing a plan for the Office of Emergency Services to, upon appropriation by the Legislature, establish and operate a public catastrophic loss model.
The bill would provide that its provisions are not severable.
The bill would make its operation contingent on the enactment of AB 2167 of the 2019–20 Regular Session.

Existing law establishes the Department of Insurance, headed by the Insurance Commissioner, which regulates insurers and insurance practices. Existing law establishes various classes of insurance, including, among others, fire and automobile insurance. Other existing law establishes various grant programs aimed at funding disaster mitigation activities, including a local assistance grant program for fire prevention administered by the Department of Forestry and Fire Protection, the Earthquake Brace and Bolt program administered by the California Residential Mitigation Program, a joint powers authority comprised of the California Earthquake Authority and the Office of Emergency Services, and specified flood prevention programs administered by the Department of Water Resources.

This bill would create the Prepared California Disaster Mitigation Board in state government comprised of specified state officers or their designees and appointed members of the public, as specified. The bill would also establish the Prepared California Disaster Mitigation Program to be administered by the board to award grants to homeowners for fire-related disaster mitigation activities, as specified.

The bill would create the Prepared California Disaster Mitigation Fund, as a continuously appropriated fund, for purposes of disaster mitigation. The bill would impose a $12 annual assessment on all residential property insurance policies, a $6 per vehicle annual assessment on all private passenger and commercial automobile insurance policies, and an annual assessment of 1% of the annual premium on all commercial insurance policies covering physical property damage or business interruption. The bill would require the assessments to be collected from policyholders by insurers and remitted to the department for deposit into the fund. By creating a continuously appropriated fund, the bill would make an appropriation.

The bill would require the board to annually distribute money from the fund, as it deems appropriate, based on the disaster mitigation needs of the state to specified state agencies, including at least 20% each to the Department of Forestry and Fire Protection for purposes of a local assistance grant program for fire protection activities, to the California Earthquake Authority for purposes of awarding grants pursuant to the Earthquake Brace and Bolt program, to the Department of Water Resources for purposes of specified flood control programs, and to the board to be awarded pursuant to the Prepared California Disaster Mitigation Program for purposes of grants to homeowners for fire-related disaster mitigation purposes. The bill would require the Department of Forestry and Fire Protection, the California Earthquake Authority, and the Department of Water Resources to report specified information to the board relating to the types of mitigation activities funded and information sufficient to allow the board to study mitigation effectiveness, as specified.

The bill would require the board to prepare a report to be submitted to the Legislature on or before January 1, 2021, and annually thereafter, that includes, among other things, a summary of the mitigation measures funded and an analysis of the effectiveness of those mitigation measures in preventing losses from wildfires, earthquakes, and floods, as specified. The bill would also require the board to prepare and submit a report to the Legislature on or before January 1, 2024, that contains recommendations for model homeowners insurance discounts based on the risk mitigation measures that the board has determined to reduce loss.

Vote: TWO_THIRDSMAJORITY   Appropriation: YESNO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 (a) The Legislature finds and declares all of the following:
(1) Climate change has created a new reality in California. Fifteen of the 20 most destructive wildfires in the state’s history have occurred since 2000 and 10 of the most destructive fires have occurred since 2015. More people died from wildfires in 2017 and 2018 than in the last 10 years combined.
(A) Igniting November 8, 2018, the Camp Fire burned for 17 days, killed at least 85 people, and destroyed over 18,800 structures. It is not only the most expensive wildfire in United States history, but was the most expensive natural disaster worldwide in 2018. Insured losses reached $12.5 billion, while total losses were $16.5 billion.
(B) Also igniting November 8, 2018, the Woolsey Fire burned for 14 days, killed three people, and destroyed over 1,600 buildings. Insured losses are estimated at $3 billion to $5 billion of the $6 billion in total property losses.
(C) Igniting July 23, 2018, the Carr Fire burned for 37 days, killed eight people, including three firefighters, and destroyed over 1,600 structures. The fire caused over $1.5 billion in property damage.
(D) Igniting December 4, 2017, the Thomas Fire burned for 39 days, killed 23 people, including one firefighter and 21 people from a resulting mudslide, and destroyed over 1,000 structures. The fire caused over $2.2 billion in damages.
(E) Igniting October 8, 2017, the Tubbs Fire burned for 12 days, killed 22 people, and destroyed over 5,600 structures. Insured losses are estimated to be between $7.5 billion and $9.5 billion.
(F) Igniting October 8, 2017, the Atlas Fire burned for 12 days, destroyed 25,000 acres, and destroyed over 700 buildings. Insured losses are estimated to be between $2.5 billion and $4.5 billion.
(G) Burning for over three months in 2018, a less costly seventh fire, the Mendocino Complex Fire, became the largest recorded fire in state history when it consumed over 459,000 acres, more than the previous largest fire, the Thomas Fire, in 2017.
(2) Fire season in California has changed. In the western United States, the length of the fire season is over 80 days longer than it was in the 1970s. According to research from the University of California, Los Angeles, residents may no longer expect fire season to end in September. Instead, the onset of seasonal rain can be delayed into October or even November. These longer periods without rain, combined with the well-known, heavy wind patterns of autumn, have created increased likelihood of uncontrollable, severe fires that endanger life and property. The Camp Fire in Paradise is an example of a fire that started after the end of the traditional fire season.
(3) The impact of catastrophic fires is multifaceted. While the governmental costs of fire response and suppression are significant, research from Headwaters Economics indicates those costs are less than 10 percent of the total costs. Combined with suppression expenses, other short-term costs, including evacuation and aid relief, road stabilization, and home and property loss only represent 35 percent of the total wildfire-related costs. Longer term costs, including loss of property value, tax revenue, and business revenue, as well as landscape rehabilitation, infrastructure repair, loss of ecosystem services, and human casualties represent the remaining 65 percent.
(4) According to a Department of Insurance 2018 report on the availability and affordability of wildfire coverage, major insurers are pulling back from writing new policies or renewing policies in the wildland-urban interface (WUI) fire areas. Additionally, premiums are increasing in the WUI, and most insurers do not take into consideration wildfire mitigation conducted by the homeowner or the community. This is in part because no single insurer has loss experience in the WUI to validate the rates and premiums charged for each wild fire risk model score. The department’s report further states that a credible database for wildfire loss experience in the WUI is needed in order for insurers to use rating plans that impact rates in the WUI and suggests that the Legislature should create a framework within which insurers offer a mitigation premium credit for property owners that conduct proper mitigation.
(5) The National Institute of Building Sciences studied 23 years of federally funded mitigation grants provided by the Federal Emergency Management Agency (FEMA), the United States Economic Development Administration, and the United States Department of Housing and Urban Development, and found that hazard mitigation funding saves $6 in future disaster costs for every $1 invested. Further, the study found that designing buildings to meet the 2018 International Residential Code and 2018 International Building Code would provide a national benefit of $11 for every $1 of investment when compared to 1990-era building codes and National Flood Insurance Program requirements.
(6) Studying, developing, and incentivizing homeowners to actively participate in, actuarially sound wildfire mitigation measures is therefore a fiscally prudent policy with the potential to save lives and prevent billions of dollars in future losses from occurring. A regularly updated and secure central database of publicly held housing infrastructure information, deployed in support of a public catastrophic loss model, has the potential to significantly enhance statewide disaster planning and response efforts, as well as quantify the benefit of homeowners’ mitigation efforts. In order to accomplish this goal, it is important for the state to partner with insurers, insurance research organizations, and local agencies to develop easily and uniformly enforced defensible space practices and measurable mitigation efforts for future study.
(7) Research shows that homeowners’ risk reduction behaviors are influenced by the perceived effectiveness of the activities and their perceived ability to complete them. Public outreach, information sharing, and a communitywide collaborative process on wildfire protection planning have been found to build trust among residents and local fire agencies. It is the intent of the Legislature to partner with local agencies throughout California’s diverse wildfire risk regions in support of collecting regionally specific housing infrastructure information in support of developing regionally specific loss modeling.
(8) Residential property insurance provides essential financial security for California residents for both short-term and long-term costs. Insurance supports temporary needs for housing and transportation for fire victims, intermediate needs for debris and hazardous materials removal from fire-affected properties, and long-term rebuilding of structures and replacement of personal property. There is no governmental program that provides similar comprehensive assistance for California residents and it is, therefore, vital for the State of California to ensure the existence of a vibrant residential property insurance marketplace capable of serving all communities.
(9) Strains in the residential property insurance system are becoming evident. As the Senate Committee on Insurance noted in its 2019 informational hearing on homeowners’ insurance availability and affordability, California policyholders have “enjoyed a long spell of low insurance rates” but “climate change, drought, population movement, and other factors may be changing the fundamental nature of the homeowners’ insurance market.” Analysis of countrywide data from the National Association of Insurance Commissioners indicates that average homeowners’ insurance rates in California rank 32nd in the country and, when adjusted for differences in regional costs, rank 49th in the country, at less than one-half the cost for insurance in states exposed to other natural disasters, including hurricanes.
(10) As part of a similar 2019 investigation of the homeowners’ insurance market, the Assembly Committee on Insurance noted the acceleration of losses in this environment of relatively low rates, finding that a “study of the homeowners’ insurance market released in 2018 as part of California’s Fourth Climate Change Assessment found that insured losses through 2017 wiped out the entire underwriting profit insurers earned since 2000. The 2018 fires continued with another round of enormous losses.” The committee cautioned against a legislative response that “increases the likelihood of any policy change to generate unintended consequences” and guarding against the great risk that regulating some, but not all, of the important aspects of insurance could “significantly disrupt a homeowners’ insurance market that is effectively serving a great majority of California homeowners.”
(11) The final report of the Governor’s Commission on Catastrophic Wildfire Cost and Recovery attempted to reconcile the various competing interests associated with insurance availability, risk selection, and pricing. The commission noted that “while insurance is still largely available, it will become increasingly unavailable and/or unaffordable for many in the wildland urban interface in California.” In attempting to harmonize the various competing interests for California, the commission recommended preserving risk-based insurance pricing, while avoiding cross-subsidies of high-risk areas by low-risk areas, as well as developing incentives for parcel and community level loss mitigation efforts.
(b) Based upon this extensive investigation in both the legislative and executive branches, the Legislature determines that a state policy response is required to solve several issues simultaneously, including all of the following:
(1) Ensuring insurance rates are adequate to avoid insurer insolvencies and to permit insurers to operate in the state’s highest risk areas, while imposing restrictions on rates above actuarially justified levels.
(2) Reducing the number of residents that are required to rely upon the California FAIR Plan, which the State of California created to provide a market of last resort but which is a catastrophic insurance pool at rate levels far higher than the regular insurance market.
(3) Incentivizing insurers to seek cost-based rates in exchange for assurances that they will serve high-risk communities at levels similar to their statewide presence.
(4) Developing systems of accountability for individual and community-based loss mitigation efforts.
(c) Recent wildfires have contributed to a surge of residential property insurance policies being issued by the FAIR Plan in numbers approaching that seen after the Northridge earthquake. In order to monitor the surges in new FAIR Plan policies and to create a standard threshold to indicate when admitted market residential property insurance availability in specified areas of the state has declined, the Legislature determines that it is necessary to do all of the following:
(1) Create a standard threshold for residential property insurance policies to qualify for the Insurance Market Action Plan (IMAP), established by this act, based on monitoring surges in FAIR Plan new business that indicate a contracting insurance market.
(2) Incentivize insurers to seek cost-based rates in exchange for assurances that they will maintain an adequate presence in specified high-risk areas of the state, and evaluate the effectiveness of these methods at reducing reliance on the FAIR Plan in eligible areas, thereby maintaining an adequate supply of admitted market insurance at a price more affordable to most consumers than that offered by the FAIR Plan.
(3) Establish a scientifically advanced probabilistic wildfire loss model for the purpose of providing property and casualty insurers access to a state of the art public tool that is accessible for comparison, evaluation, and analysis of modeled risk assumptions used in support of IMAP rate filings. In this regard, it is the intent of the Legislature to convene an advisory committee of public and private stakeholders to design standards for the use of probabilistic wildfire loss models in residential property insurance rate development, and to establish a database and computer model for that purpose.
(4) The Legislature finds these measures are necessary to limit the number of insurer-initiated nonrenewals that occur in response to changes in the understanding of wildfire risk and to limit homeowners’ reliance on the California FAIR Plan.
(A) The Legislature finds that such a model is an objective public tool that will promote precision in loss projection, and that decreasing the uncertainty of future losses in this state is necessary to stabilize large price swings in the residential property insurance market.
(B) The Legislature further intends that such a model be available to assist state and local governments incorporate a modeled understanding of the costs of wildfire risk in their planning processes.

SEC. 2.

 Section 10109.05 is added to the Insurance Code, to read:

10109.05.
 (a) The California FAIR Plan Association shall, on a biannual basis, submit a report to the commissioner that lists the counties that meet the following criteria:
(1) The county has a population of 200,000 or fewer residents and the number of new residential property insurance policies issued by the FAIR Plan during the prior six months equals 1 percent or more of the number of single family residences in that county.
(2) The county has a population of 200,001 to 400,000, inclusive, residents and the number of new residential property insurance policies issued by the FAIR Plan during the prior six months equals 0.75 percent or more of the number of single family residences in that county.
(3) The county has a population of 400,001 to 800,000, inclusive, residents and the number of new residential property insurance policies issued by the FAIR Plan during the prior six months equals 0.35 percent or more of the number of single family residences in that county.
(4) The county has a population of more than 800,000 residents and the number of new residential property insurance policies issued by the FAIR Plan during the prior six months equals 0.15 percent or more of the number of single family residences in that county.
(b) For purposes of this section, county population and single family residence counts shall be determined by the most recently available estimates published by the Department of Finance.
(c) (1) The biannual reports submitted by the California FAIR Plan Association pursuant to subdivision (a) shall be delivered to the commissioner on or before January 31 and July 31 of each year and shall be based on the sum of the new FAIR Plan residential property insurance policies issued between July 1 and December 31 of the prior year for the January 31 report and on the sum of the new FAIR Plan residential insurance policies issued between January 1 and June 30, inclusive, of that same year for the July 31 report.
(2) Notwithstanding subdivision (a) and paragraph (1), the initial report due on or before January 31, 2021, shall include the information required by subdivision (a) for the calendar years 2019 and 2020, organized in the same six-month time periods described in paragraph (1), and using the information published by the Department of Finance for those years.

SEC. 3.

 Section 10109.07 is added to the Insurance Code, to read:

10109.07.
 (a) A county that is listed on a report submitted to the commissioner pursuant to Section 10109.05 shall be designated by the department as an IMAP eligible county. The department’s first designation shall include all the counties listed on the initial report required pursuant to paragraph (2) of subdivision (c) of Section 10109.05.
(b) An insurer may submit an IMAP filing to the department for residential property insurance policies issued in an IMAP eligible county.
(c) (1) If a county is originally designated as an IMAP eligible county at the time an insurer submits and receives approval for an IMAP filing in that county, but the county is subsequently not designated as an IMAP eligible county, the insurer may continue to issue new residential property insurance policies under the IMAP rate in that county until the insurer files for a new rate in that county or until two years after the date the county is no longer designated by the department as an IMAP county, whichever occurs first.
(2) Notwithstanding paragraph (1), if a county for which an insurer has submitted an IMAP filing is no longer designated as an IMAP eligible county, the insurer may continue to renew policies with existing insureds in that county at the IMAP rate.

SEC. 4.

 Section 10109.2 is added to the Insurance Code, to read:

10109.2.
 (a) An IMAP filing shall set forth community and parcel-level mitigation standards, along with any necessary procedures for verifying mitigation activities, including any required governmental or third-party certifications.
(b) The commissioner may periodically connect IMAP eligible county representatives with representatives from IMAP participating insurers and third-party fire protection or certification associations to promote collaboration between local governments and industry on local policies for IMAP filings made pursuant to this article.

SEC. 5.

 Section 10109.4 is added to the Insurance Code, to read:

10109.4.
 A rate requested as part of an IMAP filing may be based on a complex catastrophe model, as follows:
(a) The complex catastrophe model shall be based on the best available scientific information for assessing the risk of catastrophic wildfire frequency, severity, and loss.
(b) The projected losses derived from the catastrophe model shall meet all applicable statutory standards.
(c) The complex catastrophe model shall consider both parcel-level mitigation and regional mitigation.

SEC. 6.

 Section 10109.8 is added to the Insurance Code, to read:

10109.8.
 On or before January 1, 2023, the Office of Planning and Research shall issue a report outlining the effectiveness of the IMAP program that includes, but is not limited to, all of the following:
(a) An analysis of whether the IMAP program achieved average admitted market rates lower than the California FAIR Plan plus difference in condition policies.
(b) An analysis of the overall progress of the IMAP program towards achieving market penetration goals in IMAP counties and the impact on FAIR Plan enrollments. This data shall be reported in aggregate.
(c) Recommendations for continued improvements to the IMAP program.

SEC. 7.

 Article 2 (commencing with Section 10109.10) is added to Chapter 12 of Part 1 of Division 2 of the Insurance Code, to read:
Article  2. Catastrophic Loss Modeling

10109.10
 (a) It is the intent of the Legislature to establish in state government a commission that shall consist of the following members, or their designees:
(1) The Insurance Commissioner.
(2) The State Fire Marshall.
(3) The Executive Director of the California Building Standards Commission.
(4) The Director of Emergency Services.
(b) The commission shall annually elect from its membership, a chairperson and a vice chairperson.

10109.11.
 It is the intent of the Legislature that the commission established pursuant to Section 10109.10 be created for the following purposes:
(a) To convene stakeholders from fire protection districts, the insurance industry, the building trades industry, planning associations, cities, and counties to develop regionally specific community hardening standards that have the propensity for reducing loss due to wildfires.
(b) To develop fire prevention standards for individual home hardening activities specific to wildfire risks that differentiate between, at a minimum, ember flow resistance and radiant heat resistance.
(c) To establish a central database on housing infrastructure data specific to wildfire risk for use by a public catastrophic loss model.
(d) Develop a standard for the uniform collection and secure storage of housing infrastructure data relevant to insurable risks and necessary to run a sophisticated loss model.

10109.12.
 (a) The Catastrophic Modeling Advisory Committee is hereby created, to be chaired jointly by the Insurance Commissioner and the Director of Emergency Services, or their designees. If the commission described in Section 10109.10 is created, the advisory committee shall be under the direction of the commission.
(b) In addition to the Insurance Commissioner and the Director of Emergency Services, the advisory committee shall consist of the following members:
(1) Four members appointed by the Governor, as follows:
(A) An actuary from the insurance industry.
(B) A representative from an insurance research organization with expertise in wildfire risk modeling.
(C) Two full-time faculty members from a California public university with expertise in the following fields:
(i) Statistics.
(ii) Computer system design.
(2) Two full-time faculty members from the University of California, to be appointed by the Senate Committee on Rules from a list provided by the Regents of the University of California, with expertise in the following fields:
(A) Wildfire modeling.
(B) Regional modeling.
(3) Two full-time faculty members from the University of California, to be appointed by the Speaker of the Assembly from a list provided by the Regents of the University of California, with expertise in the following fields:
(A) Fire weather studies.
(B) Wind modeling.
(c) (1) The initial appointments for the members described in paragraphs (1) to (3), inclusive, of subdivision (b) shall be made on or before July 1, 2021.
(2) The terms for the members appointed pursuant to paragraph (1) of subdivision (b) shall be for a period of three years.
(3) The terms for the members appointed pursuant to paragraphs (2) and (3) of subdivision (b) shall terminate on the date the report is issued pursuant to Section 10109.14.

10109.13.
 The advisory committee shall meet at least quarterly and shall do all of the following:
(a) Gather existing sources of publicly available housing infrastructure data relevant to wildfire loss projection and deposit data in a central database.
(b) Compile for study the existing wildfire modeling efforts and capabilities of the University of California, and other public and private universities and research organizations.
(c) Develop a comprehensive plan for the establishment of a public catastrophic wildfire loss model pursuant to Section 10109.14.

10109.14.
 (a) On or before July 1, 2024, the advisory committee shall deliver to the Office of Emergency Services, a comprehensive report detailing a plan for the Office of Emergency Services to, upon appropriation by the Legislature, establish and operate a public catastrophic loss model.
(b) The comprehensive report shall do all of the following:
(1) Adopt the best scientifically available actuarial methods, principles, standards, models, and output ranges that have the potential for improving the accuracy, precision, or reliability of wildfire loss projections used by insurers.
(2) Review available public housing infrastructure data, and identify other data necessary to operate a public wildfire loss model.
(3) Recommend a standard for the uniform collection and secure storage of housing infrastructure data relevant to insurable risks.
(4) Develop standards for model inputs, outputs, operation, and review of wildfire loss models.
(5) Recommend additional public research needed in wildfire loss modeling methodologies to improve loss projection precision or that are necessary to complete a public catastrophic loss model.
(6) Identify the housing infrastructure data needed to create actuarially sound methodologies for incorporating public and privately collected data on defensible space and home hardening methods into a public catastrophic loss model.
(7) Discuss potential interfaces for residential property insurers to access the public model for comparison of assumptions, factors, and detailed loss results, and for other analytical purposes and review sufficient to evaluate the modeling used in support of rate filings.
(A) This discussion shall consider strategies for public model review of third-party models used in rate filings and shall consider that access to the public model is intended to support the use of probabilistic loss modeling in IMAP rate filings made pursuant to Article 1 (commencing with Section 10109).
(B) A proposed public model review shall include a process to determine whether insurer assumptions meet or fail the public catastrophic wildfire loss model standards. Public model review is intended to ensure that to the greatest extent possible, an insurer’s findings, data, actuarial methods, principles, standards, models, or output ranges relied upon to project losses are based on the best available science.
(C) It is the intent of the Legislature to protect from public disclosure proprietary third-party or in-house modeling data submitted by an insurer for evaluation by or comparison with the public model.
(8) Consider strategies for using the public model to help insurers control concentration risk in a wildland urban interface area. The strategies shall include a monitored evaluation process for the assumptions used by an insurer given different modeled predictions for the insurer’s expected average annual loss, probable maximum loss, maximum possible loss, and other metrics.

10109.15.
 The members of the advisory committee shall not receive compensation, but shall receive per diem pursuant to Section 11564.5 of the Government Code, and reimbursement for actual and necessary expenses incurred in the performance of membership duties.

SEC. 8.

 The provisions of this act are not severable. If any provision of this act or its application is held invalid, all other provisions of this act shall also be held invalid.

SEC. 9.

 This act shall become operative only if Assembly Bill 2167 of the 2019–20 Regular Session is enacted and becomes effective on or before January 1, 2021.
SECTION 1.

(a)The Legislature finds and declares all of the following:

(1)California has over $1 trillion in economic loss risk exposure from future catastrophic earthquakes, floods, and wildfires.

(2)Two-thirds of the earthquake risk in the United States resides in California, and California has a long history of damaging and lethal earthquakes.

(A)In 1994, the magnitude 6.7 Northridge earthquake killed 60 people, injured 9,000 more people, and displaced 125,000 people. The Northridge earthquake caused $49 billion in economic damage and $25 billion in property damage to over 80,000 buildings. At the time, it was the costliest natural disaster in United States history, but only $15.3 billion of the damaged was insured.

(B)In 1989, the magnitude 6.9 Loma Prieta earthquake killed 63 people, injured more than 3,700 people, displaced 3,000 people, damaged or destroyed 12,000 homes, and caused more than $6 billion in property damage.

(C)In 1971, the magnitude 6.6 Sierra Madre earthquake killed 58 people, damaged 30,000 homes, and brought down parts of the Interstate 5 and Interstate 210 freeways.

(D)In 1906, the magnitude 7.9 San Francisco earthquake killed 3,000 people, left 250,000 people homeless, and started a fire that destroyed 28,000 buildings over 500 city blocks.

(E)According to the latest Uniform California Earthquake Rupture Forecast, there is a 99 percent chance that an earthquake of a magnitude 6.7 or greater will occur in California in the next 30 years, as well as a 90 percent chance of a magnitude 7.0 or greater earthquake and a 46 percent chance of a magnitude 7.5 or greater earthquake occurring in the same period. According to the United States Geological Survey, a magnitude 7.0 earthquake on the Hayward Fault could displace 400,000 people and a similar earthquake on the San Andreas Fault could displace 250,000 people. A 7.8 magnitude earthquake could cause as much as $213 billion in economic damages to the state.

(F)Prior to the 1994 Northridge earthquake, the insurance industry dramatically underestimated the potential damage from such moderate earthquakes. After experiencing a record 1,192 percent loss ratio on earthquake lines due to the Northridge earthquake, many insurers considered leaving California. The Legislature created the California Earthquake Authority (CEA) to offer earthquake insurance in California and stabilize the homeowners insurance market. Over 1,000,000 Californians now hold a CEA policy, representing over 80 percent of the California earthquake insurance market, but only 12 percent of the state’s homeowners. Making CEA policies more affordable and attainable to all Californians residing in high earthquake risk areas of the state is critical to the state’s earthquake preparedness.

(3)Flooding occurs in all parts of California. About 90 percent of floods are riverine. The state has over 7 million inhabitants and over $580 billion in assets situated within 500-year flood plains. Nearly one-half of the people living in California are concentrated in the south coast region. Over the life of a 30-year mortgage, the true risk of living in a 500-year flood plain amounts to a 6 percent chance of flooding.

(A)Approximately 35 percent of agricultural land in the state is located in flood plains, with $7 billion in crop value located in 500-year flood plain zones.

(B)Continuation or acceleration of sea level rise, in combination with climate change driven precipitation changes, will likely result in an increase in flood events, especially in the central valley.

(C)In 1997, 48 counties were declared disaster areas due to a series of Pineapple Express storms overwhelming levees in the Sacramento and San Joaquin River basins. The major flood event inundated 300 square miles. Over 23,000 structures were damaged, nine people were killed, and 120,000 people were evacuated. Damages amounted to $2 billion.

(D)In 1995, a major flood event affected nearly every part of the state. Twenty-eight people were killed and the flood caused $1.8 billion in damages.

(E)In 1986, a major flood event occurred when a nine-day rainstorm caused several levee breaks, resulting in the inundation of four Delta islands. The Sierra Nevada recorded 1,000-year rainfalls, 50,000 people were evacuated, and 13 people were killed. The flood caused $400 million in property damage.

(F)In 1955, a statewide disaster was declared when a storm caused a flood that killed 74 people and caused $200 million in economic losses.

(G)In 1909, a 12,000-year rain event over the Feather River basin resulted in La Porte receiving 57.41 inches of rain over 20 days. The flood resulted in an overhaul of planned statewide flood control designs.

(H)In 1862, a storm dumped 10 feet of rainfall in California over 43 days, causing immense flooding. Known as the “Great Flood of 1862,” the flood washed away bridges and inundated over 5,000 square miles of the Central Valley with up to 30 feet of water. The Great Flood of 1862 was a 1,000-year flood event. Models that project the impact of such a storm today, also known as an ARkStorm, suggest up to 1.5 million people could be displaced and the state could suffer $725 billion in economic losses.

(I)The federal National Flood Insurance Program is $25 billion in debt, and is heavily subsidized. Private market flood insurance exists, but accurate flood risk data is unavailable. According to a 2017 United States Department of Homeland Security Office of Inspector General report, only 42 percent of the Federal Emergency Management Agency’s (FEMA’s) flood maps adequately identify the level of flood risk. These out-of-date maps interfere with price signals for insurance premiums and home prices, and do not adequately communicate the flood risk to would-be homebuyers or insurers.

(4)Over 2 million homes, or approximately 15 percent of California’s housing stock, is at high or extreme risk from wildfires. California’s total housing risk exposure to wildfire damage is $249 billion.

(A)The top 10 costliest wildfires in United States history have all occurred in California, and 6 of those occurred in 2017 and 2018. More people died from wildfires in 2017 and 2018 than in the last 10 years combined. The 2017 and 2018 fires caused a combined $24.8 billion in insurance claims, including $21.6 billion in residential personal property claims, $2.5 billion in commercial property claims, and approximately $500,000 in auto claims.

(B)Igniting November 8, 2018, the Camp Fire burned for 17 days, killed at least 85 people, and destroyed over 18,800 structures. It is not only the most expensive wildfire in United States history, but was the most expensive natural disaster worldwide in 2018. Insured losses reached $12.5 billion, while total losses were $16.5 billion.

(C)Also igniting November 8, 2018, the Woolsey Fire burned for 14 days, killed three people, and destroyed over 1,600 buildings. Insured losses are estimated at $3 billion to $5 billion of the $6 billion in total property losses.

(D)Igniting July 23, 2018, the Carr Fire burned for 37 days, killed eight people, including three firefighters, and destroyed over 1,600 structures. The fire caused over $1.5 billion in property damage.

(E)Igniting December 4, 2017, the Thomas Fire burned for 39 days, killed 23 people, including one firefighter and 21 people from a resulting mudslide, and destroyed over 1,000 structures. The fire caused over $2.2 billion in damages.

(F)Igniting October 8, 2017, the Tubbs Fire burned for 12 days, killed 22 people, and destroyed over 5,600 structures. Insured losses are estimated to be between $7.5 billion and $9.5 billion.

(G)Igniting October 8, 2017, the Atlas Fire burned for 12 days, destroyed 25,000 acres, and destroyed over 700 buildings. Insured losses are estimated to be between $2.5 billion and $4.5 billion.

(H)Burning for over three months in 2018, a less costly seventh fire, the Mendocino Complex Fire, became the largest recorded fire in state history when it consumed over 459,000 acres, more than the previous largest fire, the Thomas Fire, in 2017.

(I)According to a Department of Insurance 2018 report on the availability and affordability of wildfire coverage, major insurers are pulling back from writing new policies or renewing policies in the wildland-urban interface (WUI) fire areas. Additionally, premiums are increasing in the WUI, and most insurers do not take into consideration wildfire mitigation conducted by the homeowner or the community. This is in part because no single insurer has loss experience in the WUI to validate the rates and premiums charged for each wild fire risk model score. The department’s report further states that a credible database for wildfire loss experience in the WUI is needed in order for insurers to use rating plans that impact rates in the WUI and suggests that the Legislature should create a framework within which insurers offer a mitigation premium credit for property owners that conduct proper mitigation.

(5)Incentivizing homeowners to actively participate in mitigation measures is critical to statewide preparedness. Research shows that homeowners’ risk reduction behaviors are influenced by the perceived effectiveness of the activities and their perceived ability to complete them. Public outreach, information sharing, and a communitywide collaborative process on wildfire protection planning have been found to build trust among residents and local fire agencies.

(6)The National Institute of Building Sciences studied 23 years of federally funded mitigation grants provided by FEMA, the United States Economic Development Administration, and the United States Department of Housing and Urban Development, and found that hazard mitigation funding saves $6 in future disaster costs for every $1 invested. Further, the study found that designing buildings to meet the 2018 International Residential Code and 2018 International Building Code would provide a national benefit of $11 for every $1 of investment when compared to 1990-era building codes and National Flood Insurance Program requirements.

(b)It is, therefore, the intent of the Legislature to do all of the following:

(1)Establish an ongoing catastrophic risk mitigation fund to prepare California’s local governments, homeowners, and small businesses for our top natural disaster risks: earthquakes, wildfires, and floods.

(2)Increase investment in the Department of Forestry and Fire Protection’s (CAL FIRE’s) local assistance grant program for fire protection, so that local governments may invest in equipment, build fire lines, and launch community preparedness efforts.

(3)Increase investment in the California Earthquake Authority’s Earthquake Brace and Bolt program, as well as design additional retrofit programs, so that homeowners may affordably retrofit their homes and prepare for the next earthquake.

(4)Increase investment in the Department of Water Resources flood control grant programs, so that local governments have the resources to save their residents’ homes from floods.

(5)Increase investment in homeowners and small businesses that perform mitigation on their property, by offering grants and rebates for specific mitigation efforts, so that others may be incentivized to follow their lead.

(6)Study the effectiveness of mitigation measures for the benefit of homeowners and insurers by giving insurers a data-driven tool for the development of insurance premium credits and discounts for specific mitigation measures.

SEC. 2.Division 6 (commencing with Section 17000) is added to the Insurance Code, to read:
6.Disaster Mitigation
1.Definitions
17000.

For purposes of this division,“board” means the Prepared California Disaster Mitigation Board.

2.Prepared California Disaster Mitigation Fund
17001.

There is hereby created the Prepared California Disaster Mitigation Fund within the State Treasury. Notwithstanding Section 13340 of the Government Code, moneys in the fund are continuously appropriated without regard to fiscal year to the board for the purposes specified in this division.

17002.

(a)An annual assessment is hereby imposed on the following insurance policies:

(1)A twelve-dollar ($12) annual assessment on all residential property insurance policies, including homeowner’s insurance, fire insurance, earthquake insurance, and policies covering condominiums and mobilehomes.

(2)A six-dollar ($6) per vehicle annual assessment on all private passenger and commercial automobile insurance policies.

(3)An annual assessment of 1 percent of the annual premium on all commercial insurance policies covering physical property damage or business interruption.

(b)The assessments shall be collected from policyholders by insurers and remitted to the Department of Insurance for deposit into the Prepared California Disaster Mitigation Fund.

(c)(1)Assessments collected pursuant to this section are not part of an insurer’s rates or rating plan, are not premiums for any purpose, and are not subject to premium taxes, fees, or commissions.

(2)The amount of the assessment shall be separately stated on either a billing or policy declaration sent to an insured.

3.Prepared Disaster Mitigation Program
17010.

There is hereby created the Prepared California Disaster Mitigation Board in state government.

17011.

(a)The board shall be comprised of the following members:

(1)The Insurance Commissioner or their designee.

(2)The Director of Emergency Services or their designee.

(3)The Director of Forestry and Fire Protection or their designee.

(4)The Director of Water Resources or their designee.

(5)The Senate Committee on Rules shall appoint two members to serve three-year terms as follows:

(A)One member of the public with experience in the insurance industry.

(B)One member of the public with experience in the risk analytics industry.

(6)The Speaker of the Assembly shall appoint two members to serve three-year terms as follows:

(A)One member of the public with experience in the insurance industry.

(B)One member of the public with experience in fire science.

(7)The Governor shall appoint four members to serve at the pleasure of the Governor as follows:

(A)One member of the public with experience in the insurance industry.

(B)One member of the public to represent insurance consumers.

(C)One member of the public with expertise in earthquake engineering.

(D)One member of the public.

(b)The Governor shall appoint the chair of the board.

(c)The members of the board shall serve without compensation, but each of the public members shall be reimbursed for the member’s actual and necessary expenses incurred in the performance of that member’s duties.

17012.

(a)There is hereby established the Prepared California Disaster Mitigation Program to be administered by the board to award grants to homeowners for fire-related disaster mitigation activities.

(b)The board shall develop, advertise, and offer to homeowners, mitigation grants and rebates designed to decrease risk of loss from wildfire or earthquake-caused fire, including any of the following:

(1)Grants for installation or replacement of the following:

(A)Fire-resistant roofing.

(B)Fire-resistant siding.

(C)Fire-resistant eaves or soffits.

(D)Fire-resistant windows.

(E)Exterior roof-mounted fire sprinklers.

(2)Grants for the replacement of exterior deck wood with fire-retardant treated wood or other fire safe materials.

(3)Grants for the removal of hazardous trees within 30 feet of a home.

(4)Rebates for the installation or replacement of the following:

(A)Earthquake shutoff valves.

(B)Exterior vent screens.

(C)Weatherstripping or fire seal strips.

(D)Trimming of hazardous trees within 100 feet of a home.

(E)Rain gutter guards or rain gutters designed to prevent accumulation of debris.

(5)Rebates for additional low-cost retrofits, as identified by the State Fire Marshal pursuant to subdivision (c) of Section 51189 of the Government Code, that provide comprehensive site and structure fire risk reduction.

(c)The board shall determine the amount of each grant or rebate to be offered as follows:

(1)An amount up to 100 percent of the cost for mitigation projects estimated to cost one thousand dollars ($1,000) or less.

(2)An amount up to 50 percent of the cost of mitigation projects estimated to cost more than one thousand dollars ($1,000), provided that no grant or rebate may be awarded for more than five thousand dollars ($5,000).

(d)The board shall collect data from grant and rebate recipients on the types and locations of mitigation efforts undertaken in order to confirm completion of the mitigation projects, and may collect data relating to any other factors necessary to allow the board to conduct a longitudinal study of the effectiveness of the mitigation measures to prevent damage during catastrophes.

(e)The board may develop and offer additional grants or rebates pursuant to subdivision (c) that are designed to decrease risk of loss from wildfire or earthquake-related fire.

4.Disaster Mitigation Funding
17020.

The board shall annually distribute money from the Prepared California Disaster Mitigation Fund to the state agencies listed in this section, as it deems appropriate, based on the disaster mitigation needs of the state. At a minimum, the board shall annually distribute the following sums of money:

(a)At least 20 percent to the Department of Forestry and Fire Protection for purposes of the local assistance grant program for fire protection activities pursuant to Section 4124.5 of the Public Resources Code, provided that only local agencies shall be eligible for grants made with these funds.

(b)At least 20 percent to the California Earthquake Authority for purposes of awarding grants pursuant to the Earthquake Brace and Bolt program.

(c)At least 20 percent to the Department of Water Resources for purposes of the Delta Levees Special Flood Control Projects Program, the Small Communities Flood Risk Reduction Program, the Flood Emergency Response Projects Grant Program, and the Local Levee Assistance Program.

(d)At least 20 percent to the board to be awarded pursuant to the Prepared California Disaster Mitigation Program for purposes of grants to homeowners for fire-related disaster mitigation purposes.

(e)Up to 5 percent to the board for operating expenses, and to administer the Prepared California Disaster Mitigation Program, including advertising the availability of grants and rebates to homeowners and fulfilling the board’s mitigation study obligations.

17021.

The Department of Forestry and Fire Protection and the board shall do both of the following:

(a)Prior to the annual distribution of funds pursuant to subdivision (a) of Section 17020, agree on the wildfire mitigation projects to be funded, with an emphasis on protecting vulnerable populations. The Department of Forestry and Fire Protection shall consider socioeconomic characteristics of the communities to be protected, including data on poverty levels, residents with disabilities, language barriers, residents over 65 years of age or under 5 years of age, and households without a car.

(b)Develop a periodic reporting agreement for the grant funds awarded pursuant to subdivision (a) of Section 17020 that requires the Department of Forestry and Fire Protection to report information sufficient to allow the board to study wildfire mitigation effectiveness, including all of the following:

(1)Information on the types and locations of wildfire mitigation projects.

(2)Information on the damage caused by wildfires in areas where mitigation efforts have occurred.

(3)Other information the board finds necessary to study wildfire mitigation effectiveness.

17022.

The California Earthquake Authority and the board shall do all of the following:

(a)Prior to the annual distribution of funds pursuant to subdivision (b) of Section 17020, agree on the earthquake mitigation projects to be funded, with an emphasis on protecting vulnerable populations. The authority shall consider socioeconomic characteristics of the communities to be protected, including data on poverty levels, residents with disabilities, language barriers, residents over 65 years of age or under 5 years of age, and households without a car.

(b)Develop a periodic reporting agreement for the grant funds awarded pursuant to subdivision (b) of Section 17020 that requires the authority to report information sufficient to allow the board to study earthquake mitigation effectiveness, including all of the following:

(1)Information on the types and locations of earthquake mitigation projects.

(2)Information on the damage caused by earthquakes in areas where mitigation efforts have occurred.

(3)Other information the board finds necessary to study earthquake mitigation effectiveness.

(c)Develop and propose to the Legislature additional cost-effective earthquake retrofit grant or low-cost loan programs for homeowners requiring seismic retrofit but who do not qualify for the Earthquake Brace and Bolt program, including owners of mobilehomes and condominiums, and for small businesses, as defined in subparagraph (A) of paragraph (1) of subdivision (d) of Section 14837 of the Government Code, that own real property.

17023.

The Department of Water Resources and the board shall do both of the following:

(a)Prior to the annual distribution of funds pursuant to subdivision (c) of Section 17020, agree on the flood mitigation projects to be funded, with an emphasis on protecting vulnerable populations. The Department of Water Resources shall consider socioeconomic characteristics of the communities to be protected, including data on poverty levels, residents with disabilities, language barriers, residents over 65 years of age or under 5 years of age, and households without a car.

(b)Develop a periodic reporting agreement for the grant funds awarded pursuant to subdivision (c) of Section 17020 that requires the Department of Water Resources to report information sufficient to allow the board to study flood mitigation effectiveness, including all of the following:

(1)Information on the types and locations of flood mitigation projects.

(2)Information on the damage caused by flooding in areas where mitigation efforts have occurred.

(3)Other information the board finds necessary to study flood mitigation effectiveness.

5.Reporting
17030.

The Department of Insurance shall collect data regarding the availability of insurance in high-risk fire areas and report that data to the board on a periodic basis.

17031.

The board shall prepare a report to be submitted to the Legislature on or before January 1, 2021, and annually thereafter, that includes at least all of the following:

(a)A summary of the amounts of the grants and rebates awarded pursuant to the Prepared California Disaster Mitigation Program and a summary of the mitigation measures implemented with those grants and rebates. The summary shall also include a discussion of any new grants or rebates under development.

(b)A summary of the mitigation measures funded pursuant to Section 17020, and an analysis of the effectiveness of those mitigation measures in preventing losses from wildfires, earthquakes, and floods, if applicable, given the types and locations of natural disasters.

(c)A summary of known existing mitigation discounts offered by residential property insurers.

(d)Recommendations for additional earthquake retrofit grant program proposals pursuant to subdivision (c) of Section 17022 to augment the Earthquake Brace and Bolt program.

17032.

On or after January 1, 2022, the board shall contract with the California State Auditor’s Office to conduct an audit of the Prepared California Disaster Mitigation Board’s operations from inception to December 31, 2021, inclusive. The audit shall provide an independent assessment of the performance and management of the board and of the Prepared California Disaster Mitigation Program. The board shall fund the audit out of its operating expense budget pursuant to subdivision (e) of Section 17020. A copy of the audit shall be submitted to the board and to the Legislature, on or before January 1, 2023.

17033.

(a)The Department of Insurance and the board shall develop an information sharing agreement to allow the board to collect data on losses caused by fire, earthquake, and flood in order to study mitigation efforts and insurer loss experience.

(b)The board shall continuously study the data compiled under this section and the data compiled by the Department of Forestry and Fire Protection pursuant to Section 17021, the data compiled by the California Earthquake Authority pursuant to Section 17022, the data compiled by the Department of Water Resources pursuant to Section 17023, and the data compiled by the board pursuant to subdivision (d) of Section 17012, including the longitudinal analyses of the effectiveness of mitigation measures to prevent loss.

(c)The board shall prepare and submit a report to the Legislature on or before January 1, 2024, that contains recommendations for model homeowners insurance discounts based on the risk mitigation measures that the board has determined reduce loss based on its studies conducted pursuant to this division.

(d)The board shall publish or maintain the data supporting the recommendations made pursuant to subdivision (c) in such a way as to be easily accessible to insurers for the purpose of ratemaking and mitigation discount development. All data made available shall comply with the privacy requirements of the Insurance Information and Privacy Protection Act (Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1).

17034.

The board may contract with private firms and public universities, as necessary, to study mitigation efforts and complete the data analysis required by this division.

17035.

All reports required to be submitted to the Legislature pursuant to this division shall be submitted in compliance with Section 9795 of the Government Code.