The number of California homeowners with earthquake insurance coverage which has plummeted from an estimated 2.4 million before the 1994 Northridge quake to less than 1 million today is about to skyrocket, according to the California Earthquake Authority.
Frustrated by private insurers’ unwillingness to offer affordable quake coverage, the state Legislature in June authorized the CEA to begin offering supplemental homeowner quake policies with 10 percent deductibles and content-damage coverage of up to $100,000.
“We’re talking about coverage that hasn’t been around since the Northridge quake,” said Mark Leonard, a CEA spokesman. “Our phones have been ringing off the hook.”
Until now, CEA quake coverage has been limited to so-called mini-policies that carry 15 percent deductibles and just $5,000 of content coverage. Those policies are guaranteed by the CEA and underwritten by 14 private insurers, which administer the policies.
Liberty Mutual began offering supplemental policies right after the June legislative authorization, and State Farm Group began selling them Sept. 1. The other 12 CEA underwriters have agreed to offer similar policies within the next few months.
“Even so, we’re getting inundated with calls from (mini-policyholders) saying they want to switch to State Farm because they don’t want to wait,” Leonard said. “The supplemental policies are selling extremely well. Liberty Mutual, which is a small company, sold over 100 in the first three weeks.”
Strong sales of the supplemental policies would indicate that the dropoff in the number of California homeowners with quake coverage is now reversing.
At present, less than 20 percent of homeowners in the San Fernando Valley have coverage, compared with 40 percent when Northridge hit, said Richard Roth, chief property casualty actuary for the Department of Insurance.
“In the simplest terms, homeowners now get half the product for twice the price,” said Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights.
Before Northridge, insurance companies offered a variety of coverage plans, with some premiums starting as low as $200 a year. Those policies often included deductibles of 5 percent to 10 percent on structural damage and covered $100,000 or more in content damage.
With a CEA mini-policy, the average California homeowner pays an annual premium of $2.79 per $1,000 of coverage ($279 for a $100,000 home).
For the new supplemental policies, average annual premiums range from about $3.50 per $1,000 for a 15 percent deductible and $50,000 of home-contents coverage, to about $4.70 for a 10 percent deductible and $100,000 of contents coverage, Leonard said.
“Those are just rough estimates, and they vary depending on where you live, so homeowners should call their insurer for a more-precise quote,” he said.
The introduction of the CEA supplemental policies comes after years of prompting from state officials and consumer advocates for private insurers to reintroduce an affordable quake policy on their own.
The reluctance by private insurers is understandable, considering the fact that prior to 1994, they had grossly underestimated the claims that could result from a major temblor. “It became an accident waiting to happen, and it happened,” said Ric Hill, a spokesman for 20th Century Insurance Co., which nearly went out of business when it was hit with $1 billion in earthquake claims.
All told, the industry was faced with more than $15 billion in claims from Northridge $11 billion of which came from residential coverage. Those claims led a staggering 93 percent of insurers to immediately stop offering earthquake coverage to cut losses.
The ensuing outcry led to the creation of the CEA in 1995. The state established the quasi-public insurance entity to provide basic earthquake insurance coverage to residents.
The aim was twofold: to stop the exodus of insurance companies from the earthquake market and to ensure residents the option of having at least some earthquake insurance.
