Many Homeowners Object to Mailers, Higher Deductibles : Firms Offer Earthquake Insurance

Hundreds of thousands of California homeowners have received mailings in recent weeks asking them if they wish to purchase earthquake insurance. Only a small fraction, however, are accepting, officials say, in part because some insurance companies have sharply increased their deductibles.

Meanwhile, many homeowners are upset about having to wait as long as two hours in lines at post offices to claim their mailings, which state law required to be sent by certified mail.

“We’re getting a lot of flak,” said Robert F. Canfield, a regional fire and casualty manager for State Farm Fire & Casualty Co., California’s leading provider of homeowners insurance, which sent out a mass mailing to its 1.3 million policyholders on Feb. 13.

“People were already angry about standing in line for stamps,” he added, citing the U.S. Postal Service’s recent first-class rate increase to 22 cents from 20 cents.

The mailings are the result of a new state law, effective Jan. 1, mandating that all companies offering residential or renters insurance in California specifically offer earthquake insurance.

The law also requires that insurance companies prove that they sent the mailings, thus prompting the use of registered mail.

The little-noticed law was spurred by, among other things, insurance-industry concern that homeowners were able to collect for earthquake damage even though they did not have earthquake insurance.

Industry officials expected that the mass mailings might double the number of California homeowners with earthquake insurance, up from the current level of about 5%. (That percentage is believed to be somewhat higher, perhaps between 6% and 7%, in the Los Angeles and San Francisco areas.)

However, consumer response at some firms indicates that this goal might not be reached, at least not in the near future.

“We will probably not double our earthquake exposure,” said Sonja Larkin-Thorne, a regional underwriting manager for Allstate Insurance Co., which has been the state’s leading provider of earthquake insurance. Larkin-Thorne said that only about 3% of policyholders are buying new earthquake coverage in her region, which covers southern Los Angeles County and all of Orange, San Diego and Imperial counties.

Some industry officials cited higher deductibles as a major reason for the low response rate. Allstate, for example, increased the deductible for wood-frame houses damaged by quakes to 10% from 5% of the property value, meaning a deductible of $10,000 instead of $5,000 on a $100,000 home. The premium, however, was lowered about 25%, to $1.50 for each $1,000 of coverage.

However, some firms that previously did not offer earthquake insurance are reporting stronger-than-expected responses.

The Automobile Club of Southern California reports that 21% of new homeowner-policy holders are accepting quake coverage. The club only began offering homeowners insurance last November.

Safeco Insurance Co. of America, which has not offered earthquake insurance since 1976, reported about a 14% acceptance rate to its mass mailing last December.