Sacramento Bee (California)
The board of the California Earthquake Authority will consider today whether to recommend that the insurance commissioner require earthquake insurers to reduce their rates by 22.1 percent in 2006.
As many as 730,000 California homeowners would save an average of about $260 a year if the board and ultimately Insurance Commissioner John Garamendi approved the recommendation. It would be the first rate cut in six years.
The last rate drop went into effect in 1999 when the Department of Insurance ordered an 11percent reduction — a move made after two years of legal fighting.
“Only 15percent of homes are insured for earthquakes. This will allow more consumers to buy insurance,” state Treasurer Phil Angelides, a CEA board member, said Wednesday.
CEA officials say insurers have achieved substantial savings on risk financing. Reinsurance costs, for example, have fallen to under $ 100million today from $250 million nine years ago. About 85percent of CEA policyholders would see a rate drop.
Angelides argued that homeowners have been subsidizing insurers participating in the privately funded state-run earthquake insurance program.
The “Earthquake Authority has too often been a better deal for insurers than consumers,” Angelides said.
Sam Sorich, president of the Association of California Insurance Companies, said insurers are still reviewing the proposal. The industry’s analysis should be ready by today’s 1 p.m. CEA meeting at the Capitol.
“Our primary point is to make sure the rate decrease in no way jeopardizes the financial soundness of the CEA,” he said.
If approved by the CEA board, Department of Insurance officials said consumers would see savings by July 2006.
Consumer advocates have long pushed for lower-priced earthquake insurance, saying coverage has become too steep for homeowners to afford, especially in high-risk earthquake regions such as the Bay Area and Los Angeles.
“One of the key reasons people have not bought or have dropped coverage is the rates are so high,” said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
“There is no financial justification for the current rates. They must come down,” Heller said. The rate cut will expand coverage in California and ease the financial risk to the state if a major earthquake hits, he said.
By law, insurers must offer homeowners earthquake coverage on their own or through the CEA, which was established by the Legislature in 1996 in response to a quake insurance crisis. Fifteen major insurers, including State Farm and Allstate, offer CEA authority policies. The CEA has more than $ 7.2billion in assets to cover claims.
