Schwarzenegger on panel looking at rate reduction
The San Francisco Chronicle
A proposal to reduce earthquake insurance rates in California — considered prohibitively expensive by many consumers — will be reviewed today by a panel of the state’s most powerful elected officials.
The proposal before the California Earthquake Authority is that the rates be reduced by 22 percent, which would result in hundreds of dollars in savings for individual homeowners.
The reduction is being proposed largely for two reasons. First, scientists have determined that earthquake hazard probabilities, along with the risk of property damage, are lower than previously thought, and the authority is required by law to base its rates on the best available science. Second, the cost to the authority for reinsurance, or insurance for insurance, has sharply fallen.
The vote today is a procedural one for Gov. Arnold Schwarzenegger, state Treasurer Phil Angelides and Insurance Commissioner John Garamendi (or their representatives) — who are the voting members of the California Earthquake Authority — and not a final passage. The three will be voting on a motion to forward the matter to the Department of Insurance for review. If approved, the decrease could take effect in mid 2006.
The vote will occur in a charged political climate. Garamendi is a candidate for the Democratic nomination for lieutenant governor, Angelides seeks the party’s nomination for governor and Republican Schwarzenegger, although he has not declared he will seek re-election, would like to reverse his declining approval ratings. Voting in favor of a rate reduction seems like a no-lose proposition.
The insurance industry has not offered an opinion on the proposal. “Our main principle is to protect the financial soundness of the (earthquake authority),” said Sam Sorich, president of the Association of California Insurance Companies in Sacramento, Wednesday.
He said the group’s actuary was examining the proposal late in the day and hadn’t arrived at an opinion.
The California Earthquake Authority is a privately funded, publicly managed organization that provides earthquake insurance for some 700,000 policyholders in the state. That is down from about 900,000 in 1998, and the high cost of premiums is largely to blame, said Angelides, who supports the reduction.
“The California Earthquake Authority has too often been a better deal for big insurers than for consumers,” said Angelides, the only one of the three officials to foreshadow his vote. “It’s time to lower rates and make insurance more broadly available to consumers.”
The Legislature created the authority in 1996, following Southern California’s Northridge earthquake in 1994. It sold $465 million worth of premiums in 2004, the average in the state costing $550 a year, according to the Department of Insurance — although rates are far higher in the Bay Area, averaging $1,000 to $1,500, officials estimate.
The authority covers about two-thirds of policyholders in the state, and the reduction, if approved, would result in a smaller rate for about 85 percent of them, said spokesman Stan Devereux.
Only 13 percent of the homeowner policies in the state include earthquake insurance, down from 15 percent in 1992.
Angelides said the average savings would be $260 a year. “The number one reason you get for people not having this coverage is it’s too expensive for what you get,” he said. “This will lower premiums and put it in reach of more Californians.”
A consumer group, the Foundation for Taxpayer and Consumer Rights, endorsed the reduction Wednesday. Its executive director, Douglas Heller, said the proposed reduction would be a boon to government as well.
“Only as rates come down and homeowners purchase earthquake insurance will the public treasury see its risk in the wake of earthquakes diminish. In other words, in order to save taxpayers from being the de facto earthquake insurer in California, rates must come down.”
E-mail George Raine at [email protected]