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A proposed assembly bill seeks to give interest earned on insurance payouts to homeowners, Gov. Gavin Newsom announced Monday.
Assembly Bill 493 seeks to change the current law that allows lenders to collect interest on insurance funds held in escrow following a disaster.
In the wake of the Los Angeles-area firestorm, Newsom said homeowners, not lenders, should benefit from the interest generated by insurance payouts, particularly those impacted by the state’s most destructive wildfires.
“Homeowners rebuilding after a disaster need all the support they can get, including the interest earned on their insurance funds,” Newsom said in a statement. ‘This is a commonsense solution that ensures that they receive every resource available to help them recover and rebuild.”
Assemblyman John Haradebian, D-Pasadena, authored the bill.
“Homeowners, not insurance companies, should receive the interest earned on their insurance payouts,” Harabedian said in a statement. “Many Angelenos devastated by these wildfires have lost nearly everything; they are struggling and need every bit of financial support. This bill puts people over profits, ensuring that rightful insurance payments go to those who need them most.”
During the aftermath of a disaster, insurance payouts are held in escrow until rebuilding is complete. That process can take months or years, during which time insurance payout funds can accrue significant interest.
While California law requires lenders to pay homeowners interest on escrowed funds for property taxes and insurance, it does not extend this requirement to insurance payouts held in escrow, according to the governor’s office. AB 493 would explicitly require lenders to pay homeowners the interest earned on post-loss insurance payouts, a common practice for other escrowed property expenses.
CA.gov/LAfires is a hub of information and resources for wildfire recovery from state, local and federal government agencies.
A spokesperson from Newsom’s office told the Los Angeles Times that interest rates usually are approximately 2% a year. For a $1 million payout for a destroyed house, interest would total about $20,000 annually.
