State earthquake authority votes to reduce coverage rates 22.1 percent. Review is in works.

The Orange County Register (California)

SACRAMENTO, CA — The California Earthquake Authority voted Thursday to reduce earthquake insurance rates by an average 22.1 percent, but new policies have a long way to go before taking effect.

Insurance Commissioner John Garamendi‘s office will review whether the assumptions made by geologists and actuaries at the earthquake authority are sound.

Bob Downer, an expert actuary and former chief actuary for Farmers Insurance Co., cautioned the authority against adjusting rates too drastically.

“The more you lower rates now, the higher the risk you have to raise rates in a year or two,” Downer said.

Consumer advocates, however, gave the board kudos.

Doug Heller, an insurance industry watchdog, does not have earthquake insurance on his Los Angeles home, but would reconsider if rates came down.

“As the rates come down, it will be much more accessible,” said Heller, executive director for the Foundation for Taxpayer and Consumer Rights. “It’s far more efficient to be insured before an earthquake than wait for government assistance afterward.”

Q: Who does this affect?

A: So far, this affects only owners of single-family homes.

Q: Will the CEA cut rates for mobile homes and condominiums?

A: The authority is still researching science and data behind these other structures and plans to make a determination when it has completed its assessment for those policies and for renters.

Q: What caused the CEA to adjust rates now?

A: With lower rates, the authority hopes more people will buy insurance. Currently, only 13 percent of homeowners have earthquake policies. The authority last voted to reduce rates by 4.5 percent in 1998.

Three things have occurred to cause them to rethink their rate policies:

First, the authority has been working with U.S. and California geologists and seismologists for a few years to determine the likelihood of earthquakes. While earthquakes are still a concern along California’s fault lines, experts believe the threat is not as acute.

Additionally, scientists have fine-tuned how they calculate which types of buildings are more susceptible to damage, considering age and height.

Lastly, rates of re-insurance (companies that back insu rance companies) have dropped significantly.

“The premiums were too high for the coverage offered. By bringing them down, more consumers will buy insurance to protect their most valuable assets, and when we have an earthquake — which we inevitably will — more families will be protected, and that’s good for the economy,” said Treasurer Phil Angelides, who is a member of the CEA board.

Q: What would keep the Insurance Commissioner from agreeing with the authority’s recommendation?

A: The Insurance Commissioner‘s office is in charge of regulating the state’s insurance companies. As such, he has to ensure that the recommended rates won’t throw them into bankruptcy when a catastrophe occurs and they are underfunded.

Q: Should I be concerned my insurance could increase when other factors change?

A: While that’s certainly a risk, the goal for lowering rates is to get more people insured. The more policies that are written, the easier it will be to even out the peaks and valleys of the earthquake insurance market.

Q: Will my deductible be lower?

A: No. The deductibles will still be either 10 or 15 percent of the structural damage to your home — not including garages, swimming pools and fences.

Q: Will coverage increase?

A: No.

Q: Why is my earthquake insurance premium in Lake Forest different from that of my friend in Santa Ana?

A: Even though Orange County is — broadly — in earthquake Zone B, according to the California Department of Insurance, the Earthquake Authority also breaks up the zones into mini-territories, depending on many different factors, including soil content and how prone that soil is to sliding.

That could mean that two homes in the same ZIP code could have different rates.
————
Register staff writer Marla Jo Fisher contributed to this report.
Contact the author at: [email protected] or 916-449-6046