Legislators to Pursue Quake Insurance Bill

Legislators say they will resume efforts this week to find a way to create a state-run earthquake insurance agency, despite the Internal Revenue Service’s decision 10 days ago to withdraw for now its grant of a tax exemption for the new agency.

State Sen. Charles M. Calderon, (D-Whittier) chairman of the conference committee dealing with the matter, said the Legislature’s best course is to agree on a bill and make its implementation contingent on IRS approval.

Agreeing with this approach was the leading Republican on the six-member committee, Assemblyman David Knowles of Placerville.

Calderon also said there is no point any longer in seeking creation of the agency, the California Earthquake Authority, before Jan. 1, since it will probably take the IRS months to make up its mind.

This may ease passage, he said, since only a majority vote would be required rather than the two-thirds necessary if it were to be made operative before Jan. 1.

In the meantime, the senator declared, as long as the Legislature continues its efforts, he is optimistic that most insurance companies will suspend any plans they had to cancel homeowners policies over the summer.

This optimism gained support late Friday. Allstate Co.--which had been reported to be considering nonrenewal of 500,000 California policies--declared that it was putting such action “on hold” pending continued legislative deliberations.

“We understand that there is some discussion that the earthquake authority legislation may be enacted with a Jan. 1, 1997, implementation date rather than the originally projected July 1, 1996,” Allstate said in a statement.

“Though disappointed and fearful the crisis will worsen for consumers and home buyers due to the delay, we will defer to the wisdom of the Legislature. Accordingly . . . we will continue to honor our good faith commitments . . . by withholding action on homeowner nonrenewals.”

Because the devastating 1994 Northridge earthquake generated $14.5 billion in insurance damage payouts, insurers have been pressing for state intervention to cap their liability in future quakes.

Current state law requires the companies to offer earthquake insurance to all homeowners policy buyers. So in order to reduce their exposure to quake losses, some companies have said they might have to reduce their homeowners offerings as well.

State Insurance Commissioner Chuck Quackenbush, a proponent of the state stepping in, had warned that without action, companies may cancel a million homeowners policies this summer.

A Quackenbush spokesman, Richard Wiebe, Friday welcomed Allstate’s statement as “good news,” but still termed Calderon’s assessment that most companies will suspend such actions as “too optimistic.”

He noted that the 20th Century Co., the hardest hit by Northridge losses, is already beginning to terminate 200,000 homeowners policies July 23 at the rate of 15,000 a month.

“There are no companies selling such insurance now that can absorb that kind of demand,” said Wiebe, suggesting that regardless of what Calderon may think or Allstate may do, an availability crisis looms in homeowners insurance.

Meanwhile, in a letter to Calderon and Knowles released Friday, another member of the conference committee, state Sen. Herschel Rosenthal (D-Los Angeles), said the time has come to search for alternatives to state-run insurance.

Declaring that many options have not been explored, Rosenthal said one possibility was “the establishment of a purely private, nonprofit insurance corporation” that would compete with private companies.

“I believe the previous frenzy calling for rushed enactment of a California Earthquake Authority by an impossible deadline, which drove the legislative debate earlier this year, has caused inaction on efforts to carefully consider other options for protecting the interest of both consumers and insurers,” he said.

Three consumers groups, in a letter addressed to Quackenbush, called on the commissioner to divulge the names of companies threatening to cancel homeowners policies and consider warning them that they might be violating antitrust laws.

“We write to urge you, as the elected insurance commissioner, to use the powers of your office to advance and protect the interests of California insurance consumers, rather than simply to accept the industry’s threats,” the letter said. It was from Consumers Union, the Proposition 103 Enforcement Project and United Policyholders.

Wiebe responded, “It would be pointless and counterproductive to cause alarm among consumers concerning policy nonrenewal plans that are only on the drawing boards.

“Moreover, due to the condition of the marketplace, there are few choices open to those consumers who may wish to shop around. Why send them into a panic when there is no place for them to go?”