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    California Electric Utilities’ Problems are Above Smokey the Bear’s Pay Grade!

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    On August 31, 2018, the California Legislature passed a number of bills addressing various issues related to wildfires that have ravaged the state in recent years.  The following bills relate to insurance in connection with past and future wildfires:

    SB-901 addresses a range of wildfire-related issues.  The bill will ease financial pressures on electric utility companies like PG&E, whose equipment has been blamed for starting many of the wildfires, while at the same time imposing safeguards in the form of programs, commissions, and memoranda of understanding for handling fire prevention, fire resilience, and damages from wildfires.  One of the bill’s highlights is allowing electrical corporations to apply to the California Public Utilities Commission (“CPUC”) to issue bonds that will finance costs that electrical corporations incur related to wildfires in excess of insurance proceeds.  The cost to repay the bonds will be included in ratepayer’s monthly rates.  Consumer advocates have criticized the Bill as a bailout of utilities who have had a dubious safety history and of passing the cost to consumers.   Supporters of the bill argue that failure to protect utility companies from financial harm will ultimately lead to even higher rates if the utility companies face bankruptcy.

    AB 2346 allows the CPUC to authorize an electrical corporation to establish a wildfire expense memorandum account for costs relating to California wildfires that occurred on or after January 1, 2015 for which CPUC has provided for no other mechanism to recover.  Such costs include: payments and costs to satisfy wildfire claims, including coinsurance and deductible expenses; legal costs incurred by the electrical corporation either to settle claims or to defend against claims relating to the wildfires; and increases in insurance premiums.  The electrical corporations would then be allowed to recover those costs through rates, subject to review by the CPUC.

    AB 1800 clarifies existing law that in the event of a total loss, for a policy with extended replacement-cost coverage, an insurer must pay the full extended replacement cost regardless of whether the policyholder chooses to rebuild at the same location, rebuild at a new location, or purchase an already built home.

    AB 1722 extends the period of time within which a policyholder is entitled to collect full replacement benefits under a replacement cost fire insurance policy from 24 months to 36 months.

    These bills will be presented to Governor Jerry Brown for signature, but not even the Governor can prevent forest fires!

    The post California Electric Utilities’ Problems are Above Smokey the Bear’s Pay Grade! appeared first on Insurance & Reinsurance.

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