SB 58-CANCEL INS. ON CERTAIN ABANDONED PROPERTY  4:13:10 PM CHAIR OLSON announced that the final order of business would be SENATE BILL NO. 58, "An Act allowing an insurer to cancel an insurance policy if property becomes entirely abandoned and the abandonment increases the hazard insured against." 4:13:20 PM ALIDA BUS, Staff, Senator Dennis Egan, Alaska State Legislature, stated that SB 58 clarifies that insurance can be cancelled when a property owner abandons the property, and thereby increases a hazard covered by the insurance. He referred to AS 21.36.210, which lists allowable reasons for cancelling personal insurance, including a grossly negligent act by the insured that increases a covered hazard and physical changes in the insured property that result in the property becoming uninsurable. As this statute is currently written, it is not clear whether these reasons would include abandonment of the property by the insured. This is the reason the sponsor wants to clarify the entire abandonment cancellation of insurance. MS. BUS said that homeowners insurance is underwritten based on the property generally being occupied. An abandoned home greatly increases the risk of damage beyond what was contemplated in the insurance contract, including damage caused by vandalism, broken water pipes, and fire. Cancellation of insurance when the property is abandoned is necessary to manage insurance costs for all consumers. MS. BUS related that SB 58 clarifies that insurance on property that has been entirely abandoned can be cancelled in Alaska, as it can in all other states. 4:14:59 PM REPRESENTATIVE JOSEPHSON asked how this statute defines abandonment. MS. BUS answered that "entire abandonment" means the property is no longer occupied by the insured as defined by the policy and does not have contents of substantial utility. Thus, if it is a property that is owned by a "snowbird," the fact that they spend their winters south is probably reflected in the policy. CHAIR OLSON suggested it might be listed as seasonal use. MS. BUS agreed. 4:15:50 PM REPRESENTATIVE HERRON wondered if it creates a conundrum if the person is paying the insurance how it could be considered abandoned. MS. BUS clarified that the question is to identify what it means to be abandoned. She suggested that perhaps the pipes are overflowing or the property doesn't contain any moveable contents. CHAIR OLSON further suggested that perhaps no one is watching the property. REPRESENTATIVE HERRON pointed out that the customer is paying premiums for the insurance. He wondered if this bill would allow the insurance company to cancel the policy even if the premiums are being paid. MS. BUS offered her belief that the situation for the property would have to be so bad that the insurance would still want to cancel it. She acknowledged that if the insurance company receives premiums it would not be in their interest to collect the premiums. Otherwise, the insurance company could just choose not to renew the policy, she said. 4:17:38 PM SHELDON WINTERS, Lobbyist and Counsel, State Farm Insurance, explained how the bill came about. He related that insurance policies are written and the premiums are underwritten based on certain assumptions and requirements. A homeowner's policy assumes that the home will primarily be "more or less" maintained and occupied. He recognized this will differ from person to person, noting some people don't perform much maintenance and others are very attentive. However, within that wide range, homeowners are placed in the same risk pool, which provides the key to answering Representative Herron's question. As long as the risk is acceptable and the homeowner has "more or less" been occupying the property, the homeowners are in the same risk pool. Throughout the country there has not been any dispute that when property becomes abandoned, those risks become so great that they weren't contemplated in the insurance policy and the property should not be in the same risk pool that everyone participates in. For example, Ms. Bus alluded to evidence of vandalism or abandonment of a home in Fairbanks in winter, which likely means the pipes will freeze and a flood or fire results. MR. WINTER pointed out that the problem is that the Alaska statutes are not completely clear that insurance can be canceled in those instances. He referred to page 1, which lists five reasons for canceling insurance prior to the renewal period. He read as follows: (4) discovery of a grossly negligent act or omission by the insured that substantially increase the hazards insured against; (5) physical changes in the insured property that result in the property becoming uninsurable; MR. WINTER offered his belief that this language is pretty broad and vague. He said this statute is not much different than many other states. Some other states simply allow insurance companies to cancel insurance if the hazard increases. Others are more specific and indicate that companies can cancel insurance if the property becomes abandoned or vacant; however, a definition for abandoned or vacant is not given. He emphasized that in all states when the property has become abandoned, State Farm Insurance, who provide insurance in all states, has never had a problem with the divisions of insurance by canceling. He said that the question was raised in Alaska when the state reviewed its policy for consistency in language and reviewed Alaska's statutes with the Division of Insurance (DOI) and whether existing statutes would allow for cancellation of insurance on abandoned property. The division responded that Alaska's statutes were not completely clear and taking a strict view that the answer would be no. The company felt that a situation could arise in which someone walks out and abandons the property and State Farm couldn't cancel the insurance. 4:22:04 PM MR. WINTERS said the reason this is so important during the midterm of the policy is that the premium has been paid and [once canceled] will be returned to the consumer; however, the insurance company wants to remove the at-risk property from the risk pool since something drastic could happen. MR. WINTERS offered to point out practical protections in the statute, but emphasized two things. First, the insurance agent is in business to sell insurance, which is their product. It doesn't make sense that they would cancel insurance since the insurance premium has been paid and return the premium unless something drastic has happened. Second, the local agent probably provides the customers their auto insurance and life insurance. Therefore, the agent will not want to lose these policyholders as customers. From a practical standpoint, the agent will try to reach out and figure out what is happening and if the home is truly abandoned. Secondly, the policy term is for one year and at the end of the period can choose to not renew the policy and not rely on the aforementioned statutory cancellation policy. For example, if a situation arises in the 10th or 11th month of the policy and it becomes clear the property has been abandoned, the insurance company could choose to not renew the policy. He clarified that what is under discussion is an eight or nine-month period of time in which something really drastic has happened and the insurance company wants to cancel the policy and remove the house out of the risk pool. Turning to the proposed bill, SB 58, State Farm Insurance worked with the DOI, the industry, and stakeholders, including the realtors who wanted some "sideboards" on this. MR. WINTERS suggested this bill was likely the most restrictive in the country. Basically, this bill would require entire abandonment. First, to be considered abandoned the property cannot be occupied by the insured as defined in the policy. This language was inserted to address the seasonal home or recreational home. He clarified that a person with a cabin policy is assumed to not be occupying it most of the time. Thus, the insurance company will not cancel the policy because the cabin is not being occupied. Additionally, it cannot have contents of substantial utility. He emphasized that he was not aware of any other state statute that includes both of these requirements to meet the test of determining whether the property is abandoned. This language was put in to basically identify that not only is it not occupied, but the furniture has been removed, and nothing exists that could be utilized by the typical homeowner. At that point the insurance company must provide a 30-day written cancellation notice, as required by existing statute. Additionally, the statutes require that the insurer must provide written notice to any lender of record. Even if the aforementioned notices occur, the owner, agent, or real estate agent, or personal representative can inform the insurance company that a mistake has been made and the property is not abandoned property, that reasonable maintenance and monitoring is underway to assure that the property is not abandoned. Finally, he could not think of any situation in which a property could be improperly canceled. He has not heard anyone voice concern; however, he assured members that the DOI has oversight over all of this and if "some rogue" reason existed the division could step in. He thanked the sponsor for this effort, which has taken several years and the concept has gone through four or five legislative committees. In closing, he said the company would like to see the bill move along. 4:27:14 PM REPRESENTATIVE JOSEPHSON remarked that the bill seemed to be written tightly. He asked how State Farm Insurance treats policies in the event someone has died and their heirs are in the process of selling the property. MR. WINTERS answered that the agent almost assuredly would know what has been happening and would talk to the personal representative. 4:28:09 PM REPRESENTATIVE SADDLER referred to page 2, line 6, which read, "entire abandonment of the property that increases a hazard insured against; ...." He asked whether he could think of any type of entire abandonment that would not increase a hazard insured against. He suggested that homeowner's coverage covers almost everything. He wondered what it might not cover. MR. WINTERS answered that he was right; however, the intent was to make this as restrictive as possible to satisfy everyone. This bill includes the provisions listed. 4:29:15 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on SB 58. REPRESENTATIVE HERRON moved to report SB 58 out of committee with individual recommendations and the accompanying fiscal note. There being no objection, SB 58 was reported from the House Labor and Commerce Standing Committee.