The Daily News of Los Angeles
SACRAMENTO, CA — Earthquake insurance rates for most California homeowners would drop by an average 22 percent next year under a proposal recommended Thursday by the California Earthquake Authority.
The plan, which still has to be reviewed by the state insurance commissioner, would save most homeowners between $ 100 and $ 600 a year.
“What it does is make earthquake insurance more affordable to more Californians,” said state Treasurer Phil Angelides, a member of the authority board. “The top reason consumers cite for not getting insurance is it’s too expensive for the insurance you get.”
The authority, which has not changed its rates since 1999, covers about two-thirds of the California earthquake insurance market with about 730,000 policyholders. It was created by the state after the Northridge Earthquake in 1994 when many insurers were considering leaving the state.
Officials said several factors contributed to the rate reduction plan, including a new study that more accurately measures risk and potential damage from earthquakes based on soil conditions and home construction, as well as a drop in the authority’s reinsurance costs.
But not every policyholder will see a decrease: About 15 percent would see their rates rise as a result of the new study.
Private insurance companies who work with the authority argued for a smaller reduction of around 12 percent to 13 percent, saying the steeper reduction could threaten the authority’s solvency if a major quake hits.
“We do support a rate reduction,” said Dan Dunmoyer, president of the Personal Insurance Federation of California. “We think it’s justified. The concern we have primarily is solvency. If there’s a big earthquake, the greatest concern would be do we have enough money to pay for the earthquake?”
Nineteen companies provide insurance through the authority, with the risk and profits assumed by the authority itself. Any insurer that provides homeowners insurance in California is required by law to also provide earthquake policies, either through the authority or independently.
Groups representing policyholders, including the San Francisco-based United Policyholders and Santa Monica-based The Foundation for Taxpayer and Consumer Rights, support the larger decrease, arguing it would provide relief to homeowners as well as encourage more of them to buy earthquake insurance.
Earthquake insurance is optional; losses are not covered under a standard homeowner’s policy.
The California Earthquake Authority offers basic earthquake insurance for California homeowners, renters, condominium owners and mobile home owners. The CEA‘s basic policy includes a 15 percent deductible, although many participating insurers offer supplemental policies that provide lower deductibles and other expanded coverages.
Coverage may include money to rebuild your home, plus up to $ 5,000 to replace damaged contents; $ 10,000 to bring homes into compliance with codes or make emergency repairs; and $ 1,500 to cover emergency living expenses.
For information on the CEA, see http://www.earthquakeauthority.com. For information on the California Department of Insurance, see www.insurance.ca.gov
SOURCE: California Earthquake Authority, Daily News research