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June 20, 2011 CALIFORNIA HO REPLACEMENT COST REGULATIONS REFERENCE AND TRAINING GUIDELINES On June 27, 2011 the new CA Replacement Cost Regulations go into effect. The purpose of this Bulletin is to highlight the key points and give you general guidance about the regulations. Please note that this is only a summary and you should review the full regulation to ensure compliance. In addition, this Bulletin supplements the FIRST Update Bulletin that gives detailed instructions on how to use the MSB website and customize Replacement Costs to meet the unique needs of each client and property. Training/CE Requirement By or before June 27, 2011 every resident licensee (agent, brokers and CSRs) must complete 3 hours of training on HO insurance valuation prior to making any estimate of HO replacement cost for a consumer. In other words, after June 27 an agent or broker providing a replacement cost estimate to a consumer without having completed the 3-hour training will be violating the regulations. Approved courses are listed on the DOI web site at http://interactive.web.insurance.ca.gov/providercourselookup/index.jsp . This list is easily found using the Agents & Brokers pull-down menu from the home page of the Department’s web site. Basic Rule Under California law, the final responsibility for determining the amount of insurance that should be purchased rests with the consumer. Therefore be sure to apply this Basic Rule: Never provide a guarantee or assurance that the amount of insurance purchased is enough to rebuild the home in the event of a loss. Don’t over-commit or make the decision for the client Be careful not to assure the client that they have sufficient coverage, because this could end up in an E&O claim if the policy limits aren’t sufficient to rebuild the home. If the client asks “Do I have enough coverage?” or “How much coverage do I need?” you should explain that ultimately the client needs to determine how much coverage they need. Of course, you can help by using the MSB tools to review the unique features and finishes in their home, but the bottom line is that the client must make the final decision about the amount and adequacy of coverage. Replacement Cost Summary California resident licensees (agents, brokers and CSRs) are required to provide the applicant or insured with a copy of the Homeowner Notice used to rate the policy according to the following rules: 1) If you review replacement cost with an applicant or insured, you must provide the Homeowner Notice (estimate of replacement cost) to them at the time the estimate is communicated. 2) If the replacement cost is reviewed on the phone with an insured you must mail the Homeowner Notice (estimate of replacement cost) to them within 3 business days of the phone call. Page 1 of 2 3) If the replacement cost is reviewed on the phone with an applicant you must mail the Homeowner Notice (estimate of replacement cost) to them within 3 business days of when they agree to buy the policy. 4) If the applicant or insured doesn’t buy the policy then the Homeowner Notice (estimate of replacement cost) doesn’t have to be provided. Fidelity will not mail or provide the Homeowner Notice directly to the applicant or insured, as it’s the licensee’s responsibility to do this. Policies Affected The Regulations apply to 1-4 family residential dwellings. They exclude tenant’s policies, policies covering individually-owned mobile homes, policies covering individually-owned manufactured homes, renter’s policies, and condominium policies that do not provide dwelling structure coverage. File Records/Documentation Agents are required to maintain specific records about the Replacement Cost Estimate. These records include: 1) The “status” of the person making the estimate (e.g., insurance agent, contractor, appraiser, etc.); 2) The name and address of the estimator; 3) The source from which or method by which the estimate was prepared (e.g. MSB); and 4) Copies of any reports, such as inspection reports, used to prepare the estimate. These documents must be maintained for five years after termination of the policy. Documents do not need to be maintained for applicants who are not subsequently issued a policy. Summary 1) Complete the required 3-hour training by June 27, 2011. 2) Never guarantee that a particular amount of coverage is “enough”. 3) When using MSB, be sure to follow our instructions exactly. 4) Keep all records associated with generating the replacement cost estimate. We appreciate your support of the Fidelity National P & C Insurance Group. Please contact our Customer Service Department at 800.849.6140 if you have any questions. Page 2 of 2
"CALIFORNIA HO REPLACEMENT COST REGULATIONS"