Earthquake insurance notification bill fails in Oklahoma

by Matthew Glans on February 29, 2012

A new bill that would require insurers to inform Oklahoma insurance policyholders if their policies covered damages sustained in an earthquake failed to pass out of committee this week. The bill, which was sponsored by State Rep. Mike Shelton, was designed to require insurers to inform customers who are purchasing or renewing property insurance whether or not their policy covers earthquake damage.

From the Insurance Journal:

“This was a simple bill that only required insurers to notify customers that their property insurance policy does not cover earthquake damage,” said Shelton, D-Oklahoma City. “Under current law, insurance companies must obtain an explicit opt-out from customers declining uninsured motorist coverage, and that system has worked fine for years. I don’t see why we would oppose greater transparency for the customer when it comes to earthquake coverage.”

HB 2863 would have required that customers obtaining or renewing property insurance policies be “notified as to whether the property insurance policy provides coverage for loss caused by the peril of earthquake.”

While Oklahoma is not situated in a seismically active region, the recent earthquake served as a reminder to legislators that earthquakes can strike anywhere. Shelton’s bill was proposed in response to the November 2011 earthquake, the largest to hit the state since the early 1950’s.

After the November quake, Rep. Shelton observed that many of his constituents were ill prepared for the risks posed by earthquake damage and are now suffering financially because the damage to their property was not covered in their homeowner’s policy.

Shelton blamed the bill’s failure on opposition from the insurance industry. Despite his efforts to address the concerns of the insurance industry, the bill failed to make it out of the House Insurance Committee.  Rep. Shelton argued that requiring insurers to notify their policyholders about whether or not earthquake damage is covered is a reasonable policy that prevents future losses while encouraging homeowners to prepare themselves and their properties for the physical and financial risk of earthquakes.

“After the recent earthquakes, many homeowners experienced significant damage and learned the hard way that it was not covered by a homeowner’s policy,” Shelton said. “My legislation would simply require insurance agents to explicitly notify customers that they do not have earthquake coverage and give them the opportunity to buy it.”

Shelton revised the bill to address the concerns of insurance groups, but noted that lobbyists for the insurance industry still “turned out in force” to oppose it.

“Now that earthquakes have been added to the list of natural disasters facing Oklahoma homeowners, it makes sense to be proactive and encourage property owners to obtain earthquake insurance coverage,” Shelton said. “A house is the biggest single investment most families will ever make, and they should not face the loss of their home due to a lack of information.”

While there are cost concerns for insurers, this bill does have merit and should be reconsidered in the future. There are several advantages this bill would create for insurance companies. First, informing policyholders that their coverage is incomplete is likely to increase the number of policyholders those deciding to purchase or add earthquake coverage to their policies. Second, requiring insurers to inform consumers about their earthquake coverage before a quake strikes reduces the likelihood of lawsuits from property owners should a disaster strike.

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