State Agency Set to Begin Providing Quake Insurance

The California Earthquake Authority, with companies representing 71% of the state’s insurance market participating, said Tuesday it will begin providing quake insurance to the state’s homeowners, effective Monday.

The new authority was established this year after huge damages from the Northridge earthquake caused an insurance availability crisis. It will take over policies from participating insurance companies and absorb much of their risk. In turn, the companies will make an initial contribution and pay some quake damages in the early years.

“Obviously, we’re pleased that we met all the rules, and delighted that all the Californians who want earthquake insurance will be able to obtain it,” said Greg Butler, chief executive officer of the new authority.

Although the new authority will provide coverage at a price often twice that charged by private carriers before the 1994 Northridge earthquake, along with many coverage restrictions, Butler noted that many companies have recently been charging higher rates than the authority will charge.

So, he said, some policyholders will actually get a rate reduction when their renewals come due.

Under a controversial rate structure approved tentatively by Insurance Commissioner Chuck Quackenbush, there are 19 rates that differ vastly across the state, based on perceived earthquake risks.

The quake authority board, meeting in Sacramento, authorized the start-up after Quackenbush certified that the legal requirement of 70% participation had been met.

Butler said that the start-up, as far as individual policyholders are concerned, will be phased in over a year.

A homeowner or condo owner who has an earthquake policy with a particular company now will retain that policy until its renewal date, Butler said.

He explained that policyholders will not be insured with the authority until after their renewal, when their companies will roll policies over into the authority.

What this means is that if a damaging earthquake should strike in the early weeks of operation, most people will still be insured by their companies rather than by the authority, Butler said. Policy renewals are staggered throughout the year.

People who do not carry earthquake insurance now can obtain it with the new authority through their regular insurers. If their insurers are not participants in the authority, under state law they must offer quake policies at their own price.

One of the last sizable companies to agree to turn its earthquake policies over to the authority this week was CNA, which had earlier indicated that it would not join. The “big three” sellers, State Farm, Farmers and Allstate, with more than half the state’s market share, had agreed to join earlier.

Rejected for now was 20th Century, which is under an order to get out of the homeowners insurance business after having taken devastating losses in the Northridge disaster.

A Quackenbush spokesman said the commissioner had posed conditions for that company resuming sales that it would not agree to meet. He did not elaborate.

Ric Hill, a spokesman for 20th Century, said, “Discussions are continuing. We are still considering alternatives for remaining in the homeowners business and participating in the authority.”

The authority’s board Tuesday also agreed to let the state’s FAIR plan, providing insurance as a last resort when the regular markets are unavailable, join the authority.