Some people who have GeoVera earthquake insurance in California are getting eye-popping premium increases.
John Ross of Berkeley says his premium more than tripled to $4,635 this year from $1,445 last year.
Pat Canzian of San Mateo saw a similar increase, to $4,315 from $1,446.
David Costa says the premium on his Pacifica home – which is at
least 5 miles from the San Andreas Fault – shot up to $7,491 from
Based in Fairfield, GeoVera provides stand-alone earthquake
insurance that is not coupled with a standard homeowner’s policy. With
about 80,000 customers, it is the second-largest provider of
residential earthquake insurance in California after the
state-sponsored California Earthquake Authority.
Some customers were surprised that the California Department of Insurance would permit such big rate increases.
"My wife and I live in the Berkeley hills, not far from the Hayward
Fault," Ross says. "We have been buying earthquake insurance from
GeoVera for the past 10 years. We have never made a claim on this
insurance policy and we have seismically retrofitted our house with
shear walls and extra foundation bolts. I was under the impression that
California insurers have certain limitations when it comes to
increasing their premiums."
Kevin Nish, chief executive of GeoVera, says the premium increases
are the result of a new rate filing that was submitted in 2006,
approved by the insurance department in 2008 and implemented in 2009.
As part of the rate request, GeoVera switched to a newer model for
sizing up seismic risk based on a home’s location. GeoVera disclosed
that this switch would cause some customers’ rates to go up and others
to go down but that on average, the net result would be a zero percent
change in rates and premiums, according to Nish.
In its filing request, GeoVera disclosed that fewer than 100
customers would have premium increases exceeding 200 percent as a
result of this switch in seismic models.
"There are places where the seismicity went from very low to very
high. Those would be very few and very far between," Nish says.
At the insurance department’s request, GeoVera also switched to a
new model for estimating rebuilding costs. As part of this switch,
GeoVera sent questionnaires to customers asking for detailed
information about their homes.
Based on this information and its new rebuilding-cost model, GeoVera revised coverage amounts for customers.
The insurance department allowed GeoVera to add a 20 percent "demand
surge" increase to coverage amounts for the property’s main dwelling,
other structures and loss of use (but not personal property), Nish
says. The surcharge reflects the fact that after a big quake, shortages
of labor and materials would probably increase the cost of rebuilding.
To come up with a customer’s premium, GeoVera applies the rate to
the coverage amount. Therefore, even if there was no rate change, a
customer’s premium would rise if the coverage amount increased.
In its rate filing, GeoVera was not required to publicly disclose
what impact the change in rebuilding costs would have on premiums.
Nish could not say what the impact has been. "We are still rolling
through renewals. We don’t have a set of final figures," he says.
Todd Foreman of Consumerwatchdog.org says his organization, based in
Santa Monica, has received complaints from GeoVera customers in
Southern California whose rates have jumped as much as 300 percent.
Foreman says his group is planning to ask the insurance commissioner
to investigate whether the switch in rebuilding-cost estimates "is
improperly increasing premiums."
Foreman also says GeoVera is applying the 20 percent demand surge in
a way that violates an agreement among Consumer Watchdog, GeoVera and
the insurance department.
Nish says GeoVera is adding the demand surcharge in compliance with the state-approved rating plan.
Darrel Ng, a spokesman for the insurance department, says customers
who think their premium increases are unjustified can file a complaint
by calling (800) 927-4357.
He says they also can shop for lower premiums. All insurers who
offer homeowner’s insurance are required to offer quake coverage,
either their own or one from the California Earthquake Authority.
Canzian, the San Mateo homeowner, says her GeoVera policy "was a
pretty good deal" before the rate increase. Rather than pay a higher
premium, she has decided to use the money to shore up her house.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at [email protected].