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California Homeowners’ Insurance Valuation

05 Aug
House in South Park, San Diego, California

Image via Wikipedia

The Regulation is Long Overdue: The California Department of Insurance Passes Regulations Requiring A Property Valuation Class.

The discussions began as far back as 2005 when SB 2 was added to Section 1749.85 to the California Insurance Code (CIC).The regulation is in response to the “chronic” problem of underinsurance most notably in the area of residential properties. The State Insurance Commissioner, Steve Poizner, initially proposed these regulations as a result of major wildfires most notably in the San Diego area that destroyed 1600 homes and a reported 35,000 claims according to the L. A. Times. A major issue following the loss was underinsurance and who should be held responsible. Many homeowners publically complained that they felt they had been mislead by their insurers. In the article published in the Los Angeles Times on October 23, 2008, it stated that 35 homeowners who were members of the United Policyholders, an insurance consumer group, called on the commissioner to take action. (http://articles.latimes.com/2008/oct/23/business/fi-underinsure23 )

“The commissioner must take enforcement action against companies, agents and brokers if investigations find they did not honor commitments to pay for reconstruction costs”, the group said. It also wants the commissioner to hold hearings, conduct legal investigations and back legislation in Sacramento to deal with what it contends is a widespread problem of underinsurance of homes in fire-prone areas. California courts have ruled that homeowners have the primary responsibility for ensuring that they have enough insurance on their property.

On February 4, 2011 a notice came out from the Department of Insurance of California announcing that as of December 29, 2010 the California Office of Administrative Law (OAL) approved regulations specific to the standards and training for estimating the replacement value on homeowners’ insurance. The regulations that are now in effect are requiring that when estimates are made for insurance valuation that they be more comprehensive and reliable. The NOTICE can be found on the DOI sitehttp://www.insurance.ca.gov/0200-industry/0120-notices/ under this link. In addition the link to the regulation (1749.85) is http://www20.insurance.ca.gov/epubacc/REG/151771.htm. Broker-Agent Requirements under DOI Regulation 1749.85 as amended by Section 2188.65 dated 12/29/11 that is found in this link.

This article will provide an overview of the regulation and requirement. Each Broker/Agent or insurance company involved in selling “residential” insurance in California should refer to the regulations directly.

Overview of Insurance Valuation Training Requirement:

1. Who does the requirement pertain to?

All Fire and Casualty Broker-Agent OR Personal Lines Broker-Agent licensed in the State of California that “transacts, negotiates or sells homeowners’ (HO) insurance

2. When did the regulation become effective?

On December 29, 2010

3. What must the Broker-Agent do to meet this requirement?

The California licensed Broker-Agent must complete a three (3) hour course approved by the CA. DOI. They must take this course ONLY once during the life of their license. This requirement is NOT in addition to the number of hours currently required for all California licensees but is to be part of the required hours.

4. When must the Broker-Agent have to take this class?

The Department of Insurance NOTICE states that the new training requirement as follows:

On or after June 27, 2011, prior to estimating the replacement value of structures or explaining the various levels of coverage under a homeowners’ insurance policy, California resident agents and brokers who have not previously completed the homeowners’ insurance valuation training, must do so.

5. What will this course cover in terms of content?

The content is mandated by the DOI and provided to all providers of the education in their detailed outline. The Curriculum Objectives include the specific topics that the participants will be able to understand including:

(1) Be able to differentiate between a homeowners’ policy and a dwelling property policy;

(2) Be able to estimate the value of an insured’s property by having basic knowledge of its value

(3) Know the valuation principles and methods

(4) Know the value of the components of a dwelling to assess its replacement cost or value

(5) Have the ability to recognize other factors influencing the replacement cost

(6) Have knowledge of endorsements used in relation to the insuring of replacement costs of homeowners/dwelling policy; and,

(7) Understand the process used in determining the value of an insured’s property

There are several sections of the DOI regulation that must be reviewed as relates what is required of a Broker-Agent in terms of providing property estimations and document maintenance. All of these sections can be found at: http://www20.insurance.ca.gov/epubacc/REG/151771.htm. Some of the key sections include:

Section 2695.182 Documentation of Person Making Estimate. This section details the type of documentation that must be maintained on valuations and begins with:

a) In the event an estimate of replacement cost is provided or communicated by a licensee to an applicant or insured in connection with an application for or renewal of a homeowners’ insurance policy that provides coverage on a replacement cost basis, the licensee shall document and maintain in the applicant’s or insured’s file the following information: (regulations detail what and how the records are to be maintained)

(e) “Estimate of replacement value” shall have the same meaning as “estimate of replacement cost” and means any estimate, statement, calculation, approximation or opinion, whether expressed orally or in writing, regarding the projected NOTE: Authority cited: Sections 790.10, 1749.7, 1749.85, and 2051.5 of the California Insurance Code. Reference: Sections 790.03, 1625, 1625.5, 1749.85, 2051.5, 10087, and 10104 of the California Insurance Code.

(f) An agent or broker who provides an estimate of replacement cost to an applicant or insured with respect to a policy of homeowner’s insurance shall maintain records and copies as mandated by Section 2695.182 and subdivision (i) of Section 2695.183.

~Laurie
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