Day of Last Resort : Homeowners Pack Fair Plan Office to Beat the Deadline

Andy Andersen took the day off from work, drove himself and his wife all the way in from San Bernardino and then joined a long line of other anxious homeowners packed into the Mid-Wilshire offices of the California Fair Plan.

But the Andersens weren’t complaining Friday morning as they applied for insurance on the last day the state’s insurer of last resort would accept most new applications for earthquake, fire and other kinds of basic homeowner coverage.

“Our broker told us last night to come here,” said Esther Andersen, who has been trying to replace an existing policy that was canceled. “He took three days to find us something but he couldn’t. There is nothing available.”

The Andersens and the other frazzled homeowners in the Fair Plan offices Friday might be the lucky ones. With the Fair Plan joining private insurers in restricting the availability of new property coverage, consumer groups and real estate leaders fear the scarcity of homeowners insurance will become a full-blown crisis that could leave many without protection and halt many home purchases.

“We are viewing this with very great concern,” said Rick Snyder, president of the California Assn. of Realtors. “We don’t want the ability of buyers to buy and sellers to sell to be hampered because of a lack of available insurance. That’s very much a possibility.”

California Insurance Commissioner Chuck Quackenbush decided last week to stop the California Fair Plan from accepting new insurance applications from homeowners after Friday, with the exception of those in designated brush fire areas and inner-city neighborhoods. Quackenbush’s decision also does not affect existing policyholders.

The Fair Plan, whose policies are backed by private insurers, was created to offer basic fire, earthquake and other types of homeowners coverage in brush fire and inner-city areas where protection has traditionally been hard to obtain. Every company that sells property insurance in the state is required to join the Fair Plan and share in the organization’s liabilities or profits.

The plan was opened up to all homeowners after the massive losses suffered by insurers during the 1994 Northridge earthquake prompted many companies to limit sales of new homeowners policies. They acted because state law requires them to offer quake coverage to anyone buying a homeowners policy, and the insurers feared taking on more quake coverage. About 28% of California homeowners have quake insurance.

Tim Manata Jr., an independent insurance agent in downtown Los Angeles, said real estate salespeople he works with “are really beginning to panic.”

When the Fair Plan was available as an escape valve for people who couldn’t find coverage elsewhere, real estate agents could be reasonably confident that their sales would go through. Now, Manata said, they are losing that confidence.

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All but two of the 10 insurers Manata represents have stopped offering new homeowners and fire coverage. And those two will write policies only for homes less than 35 years old.

In restricting eligibility, Quackenbush said he was concerned that the Fair Plan’s rapid growth had raised the possibility of a major default, given the insurance pool’s tiny assets and the billions of dollars in potential liabilities in case of a major quake.

Quackenbush noted that the Fair Plan has already swelled in size to become the state’s fifth-largest insurer, with about 3% of the market.

It would move up to fourth place by year’s end if the flow of new applications were not stopped, he said.

While the real estate and consumer groups have attacked Quackenbush’s decision, the insurance industry supports it as one that will prevent a potential default and head off a costly bailout.

Barry F. Carmody, president of the Assn. of California Insurance Companies, the state’s oldest and largest insurance trade group, said the Fair Plan earthquake insurance program is unfair because the pooling arrangement spreads the disaster risk to people who don’t even live in seismically active areas.

“Why should somebody with a $400,000 home in San Francisco who wants earthquake insurance have that risk dumped on a guy who insures an apartment building in Fresno?” Carmody said. “I shouldn’t be exposed to that risk if I didn’t sign on for it.”

But Betsy Imholz of Consumers Union said the fears of imminent default are overblown. The industry has been backing legislation that would cap the Fair Plan’s earthquake insurance market share at 6%--nearly double where it now stands, she said.

In other words, the industry itself was identifying the danger point as much higher than the current level, Imholz said. The legislation presumably will be dropped because of Quackenbush’s action.

“The commissioner’s action to cut back the Fair Plan policies is devastating for consumers,” Imholz said.

“It will barrel us into a homeowners insurance crisis.”

On Friday, homeowners started pouring into the Los Angeles office of the Fair Plan as early as 6:30 a.m. to beat the deadline. As the few chairs and limited counter space were quickly occupied, many applicants were filling out forms while standing in line or crouched on the floor.

“It’s a bit of a circus,” said Eagle Rock resident Carmen Toffy as she juggled her purse, insurance form and carbon paper while waiting in line to submit her form. Like many others in line, the 42-year-old telephone manager wanted to at least get coverage from the Fair Plan in case she fails to get a policy from a private insurer.

“I want to see what my quote is going to be,” said Toffy, whose insurer, 20th Century, will no longer offer earthquake coverage. “Even though we didn’t suffer any structural damage during the quakes, you never know what’s going to happen.”

Gordon Walsh, a 40-year-old financial consultant, arrived in the office the day after he failed to get an insurance company to commit to insure the house he wants to buy in Agoura Hills.

“It’s like a backup,” Walsh said of his Fair Plan application. “My intention is not to use it if I don’t have to.”