Calif. Proposes Agent/Broker Regs to Alleviate Under-Insurance

To alleviate concerns about homeowner under-insurance, the California Department of Insurance has scheduled a hearing for May 17 in Los Angeles to discuss proposed regulations governing standards and training for estimating replacement value on homeowners’ insurance.

According to CDI, the proposed regulations would:

• Set requirements for replacement value and replacement cost estimates to create a more consistent, comprehensive and accurate re-placement cost calculation;
• Set forth training standards for agents and brokers who sell homeowners insurance;
• Set forth standards for real estate appraisers who estimate replacement cost for insurance purposes;
• Require the application of certain standards when estimating replacement cost and construction costs; and
• Establish record keeping requirements.

The regulations would apply to fire and casualty broker-agents and personal lines broker-agents. The reason for proposing the regulations is to ensure that homeowners have more accurate replacement value estimates for their homes.

“The Department and the California Legislature received a significant number of complaints by homeowners who lost their residences in the Southern California wildfires of 2003. Since 2003, California has experienced significant wildfires in 2007 and 2008 leading to the loss of a high number of residential structures. After each of these fires, fire survivors complained about problems including their experience that after the fire they learned that the replacement value estimates made in setting coverage limits for their homes was too low, causing under-insurance issues to arise during efforts to rebuild or replace their residences,” according to Darrel Ng, CDI spokesman.

CDI believes that having an accurate estimated replacement value that is updated regularly is critical to preventing under-insurance. As a secondary benefit to the regulations, new jobs may be created and business may increase for real estate appraisers and other entities that can assist the insurance industry with estimating replacement costs and construction costs of residential dwellings, the Department said.

Insurance Brokers and Agents of the West (IBA West) plans, however, to urge the DOI to make several changes in the proposed regulations to minimize the impact on broker-agents.

“These new proposed regulations are substantially improved over previous discussion drafts, but additional clarification is needed to minimize the impact on broker-agents, and we will respectfully propose a number of amendments,” said IBA West General Counsel Steve Young. The proposed regulations would “impose a series of new record keeping requirements, and in some cases could expose broker-agents to liability even for estimates supplied by insurance companies or vendors selected by insurers,” he said.

The hearing will be held on May 17 at 300 South Spring St., Los Angeles, CA 90013. For information, visit http://www20.insurance.ca.gov/epubacc/REG/140872.htm.

Topics California Agencies Legislation Homeowners