Finding Faults in Earthquake Insurance

Question: In a recent column about earthquake insurance, you mentioned a company that offered earthquake insurance in the amount of $100,000 protection for $125. I have been carrying $75,000 worth of earthquake insurance on our house. The company recently wrote that they would no longer carry this kind of insurance but gave me no reason for stopping.

Would you kindly tell us the name of the insurance company so we can contact them between now and the end of July, when our present policy on earthquake protection expires, or else refer us to some reliable insurance company that does handle this type of insurance and that doesn’t charge an arm and a leg for coverage? It strikes me that earthquake insurance must be a whole lot like automobile and homeowner insurance in that the premiums vary a lot--from neighborhood to neighborhood even--and are pretty hard to compare.--R.D.

Answer: It’s quite true that our earlier discussion of earthquakes here dealt primarily with the physical phenomenon itself: what sort of structures fared better than others in the 1983 Coalinga quake; why pinpointing quake zones is such an inexact science, and, in general terms, whether earthquake insurance is warranted. Only one fleeting mention was made of earthquake-insurance premiums, and that was a “for instance,” generic reference thrown in by the source I was quoting--as a sort of ballpark figure that didn’t really refer to any specific company’s premium.

Ironically, perhaps, according to Tom Garnett, director of consumer affairs for Santa Monica-based National Insurance Rating Service (NIRS) and Bancsure Insurance Services, earthquake-insurance coverage is one of the few areas of the casualty-insurance business in which the premiums are fairly standardized. (And “casualty” is a broad, broad field that takes in virtually everything--auto, homeowner, you name it--except life insurance.)

Highest Premium Found

“The norm is about $2 per $1,000 per year, or about $200 for a $100,000 home,” Garnett adds, “and that’s for the 5% deductible, which, incidentally, is a deductible on top of the standard homeowner-policy deductible of about $250. The highest premium we found for earthquake, 5%-deductible coverage was $2.15 per $1,000 being written by one company.”

This, of course, raises the interesting question of where my source got that $125-for-a-$100,000-home figure used in the earlier column. It could have referred to earthquake insurance with a 10% deductible (instead of 5%), which, Garnett says, normally carries a premium of $1.50 per $1,000. And the premium can be further trimmed slightly if the homeowner has the same insurance company handling his earthquake coverage, homeowner coverage and automobile insurance.

But, as you say, it is in the automobile and standard homeowner-insurance business that premiums range all over the countryside and are virtually impossible for the average consumer to compare intelligently. And so, for most of us, buying such insurance is strictly an “eeny-meeny-miny-mo” proposition in which we don’t have the foggiest idea of whether we’re paying a “fair” premium.

In one Federal Trade Commission study of casualty-insurance rates, for instance, it was found that fewer than half of all buyers of casualty insurance make any attempt at all to compare costs--even though, the same study showed, auto premiums for two drivers with identical driving records can vary by as much as 300%, and two homeowners with identical houses and coverage can be as much as 100% apart in their homeowner-insurance premiums.

Ignorance on Rates

It was the existence of this black hole of ignorance about comparing rates and coverage, Garnett says, that four years ago led Al Rice and Neil McAuliffe to plow $5 million into the highly sophisticated, computerized National Insurance Rating Service and the independent agency servicing it, Bancsure Insurance Services. Rice is former president and chief executive officer of Imperial Bank and vice chairman of Bank of America, and McAuliffe is a insurance executive of long standing.

“In time, of course, we’re going to go national with this service,” Garnett says. “But initially, it’s available without cost to anyone in California.”

And “this service” to which Garnett refers permits anyone interested in shopping for the best insurance premium--for homeowner, auto, fire, theft, flood, earthquake or property--to call NIRS at (800) 824-6205; the local number is (213) 207-7100. Any one of about a dozen agents on duty will feed the sort of coverage desired into the firm’s computer and, in a matter of minutes, will emerge with the name of the insurance company providing the best premium.

“This capability covers about 130 auto and homeowner plans now available to California residents,” Garnett adds. “And that amounts to about half of all the insurance carriers doing business in the state. Naturally, we don’t tie into the direct writers, such as State Farm and Allstate, but we’ll come up with the best rates among the others.”

Conceivably, Garnett admits, one of the large, direct writers of casualty insurance may have better premiums than those offered by the other 130 companies on NIRS’ list, but at the same time the search is simplified tremendously by being able to scan the rest of the competition with one phone call.

If the telephone rating service is gratis, what does NIRS get out of all this?

There’s no obligation but, presumably, if NIRS flushes forth parallel coverage at a materially lower premium through one of the companies it monitors, Garnett says, the insurance shopper might then prefer to have Bancsure Insurance Services, a full-service, independent insurance agency affiliated with NIRS, write and service the new policy.

“What we have is an agency-management arrangement with all of the companies we monitor,” Garnett says, “which simply means that any time there’s a change required in the client’s policy--let’s say he sells his car and buys a new one--he can call and the endorsement will be prepared right on the spot, and he’ll know immediately what the new premium will be.”

Bancsure also has claims authority with most of the companies it services, Garnett adds. “And, in most cases, that means that Bancsure has check-writing authority to satisfy claims up to some dollar figure, commonly $1,000, immediately.”

Shopping around for the best premium in this confusing business, he adds, is well worth a single phone call.

“You can take two policyholders in identical situations--same area of town, same full coverage,” Garnett says, “and you’ll find semiannual premiums ranging all the way from $300 to $800.”

One factor that is currently stimulating interest in automobile insurance, he adds, is new legislation that goes into effect July 1. The new law makes it mandatory for all drivers stopped for any infraction of the law to present proof of insurance--or run the risk of incurring a separate citation, with a possible fine up to $500 on this count alone.

Q: It would be well to advise your readers not to be too quick to bite on the 25-cents-per-can rebate presently being advertised by Chevron Oil. After you have bought the can and obtained the rebate coupon at the check-out stand, you read the fine print at home and learn that in addition to the coupon and the sales receipt, you must cut out each of the uniform price-code symbols printed on the cardboard “cans.”

The obvious intent is to make the process so difficult that people will not follow through. They were successful in my case--I don’t intend to drain the cans into other containers so I can cut out the price-code symbols. I did send in the sales slip and coupon with a protest, but got back a form rejection.--W.R.R.

A: Chevron’s public relations spokesman, Tom Walker, suggests that you were trying to make a harder job out of the cutout chore than the company had envisioned.

“The can is cardboard,” he said, “and it was intended that the customer would cut lightly around the code bars with a knife and simply peel off the bars without destroying the can in the process.”

Obviously, too enthusiastic an approach to this cutting job could well result in a messy lapful of oil.

You won’t have to worry about it any longer, however, because the offer--a 33-cent rebate on a quart of oil, $1.50 on a gallon, $2 on six quarts and $4 on 12 quarts--ended May 31.

Don G. Campbell cannot answer mail personally but will respond in this column to consumer questions of general interest. Write to Consumer VIEWS, You section, The Times, Times Mirror Square, Los Angeles 90053.