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BestWire (A.M. Best)

SACRAMENTO, CA — A proposal by California Gov. Arnold Schwarzenegger to assess a 1.25% surcharge on property insurance premiums to pay for wildfire-fighting efforts was met with grudging nods by insurer trade groups.

The fee, to be included in the Republican governor’s Jan. 10 budget proposal, would be added to the insurance bills for all home and commercial property in the state. Funds would go to finance state firefighting personnel and equipment.

“It’s not something we would have suggested and it’s not something we welcome, but we understand the budget realities,” said Ken Gibson, western region vice president for the American Insurance Association.

While the AIA has not taken a formal position on the budget proposal, difficult steps will be necessary to address a projected $14 billion state deficit — and other ideas could be worse than a pass-through assessment, he said.

“It’s like castor oil. We don’t like it, but we’re going to have to swallow it sooner or later,” Gibson said.

Christian J. Rataj, state affairs manager, western region, for the National Association of Mutual Insurance Companies, said added wildfire safety would be worth the cost to consumers and the headache of additional administrative and financial burdens for insurers.

“Although NAMIC generally opposes legislative and regulatory attempts to make insurance consumers pay for essential government services that are funded through general state taxes, with every rule there is an exception,” Rataj said in a statement. “In light of the serious budget constraints in the state, the heightened fire exposure in the state, and the need for enhanced fire prevention and fire fighting services in the state, this is a reasonable and necessary solution to a societal need.”

A California-based consumer organization that is currently challenging several companies’ insurance rates urged legislators to reject what it called “a tax on consumers.”

Douglas Heller, executive director of the Foundation for Taxpayer and Consumer Rights, said in a statement, “Shared responsibility does not mean making average Californians pay while the governor’s insurance company donors just deliver the check to Sacramento.”

Passage of the surcharge through the Democrat-controlled legislature is not a sure thing, as elected officials from urban areas will question why their constituents should pay more to protect “those who insist on living in
fire-prone areas,” Gibson said.

More than 33,000 claims have been submitted to California insurance companies for the wildfires that destroyed more than 500,000 acres and 2,000 homes last fall. State Insurance Commissioner Steve Poizner has said that at least 1,500 of the claims reported are known to be total losses, with an estimated insurance industry exposure of more than $1.6 billion (BestWire, Dec. 3, 2007).

In 2006, the top five writers of homeowners multi-peril in California, according to A.M. Best Co. state/line data, were: State Farm Group, with 21.7% market share; Farmers Insurance Group, with 16.6%; Allstate Insurance Group, with 13.4%; California State Auto Group, with 6.3%; and USAA Group, with 4.5%.
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