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BestWire (A.M. Best)
January 10, 2008

by Sean P. Carr, Senior Associate Editor, BestWeek

PROPOSED CALIF. LEVY GETS GRUDGING NOD FROM INSURERS

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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Contact the author at: Sean.Carr@ambest.com