New Insurance Firm to Be Devoted Exclusively to Earthquake Coverage : BANKING/FINANCE

A Costa Mesa firm is forming the nation’s first insurance company devoted exclusively to covering losses from earthquakes.

Rupp & Johnson, risk management consultants, expects to file for state approval of its Earthquake Mutual Insurance Co. within a month, said Richard V. Rupp, president of the consulting firm. He said he hopes that the company will be approved within three months.

Rupp said an earthquake insurance company could be viable only as a mutual company, one in which the policyholders own the company. A mutual avoids the profit-motive pressures that are on public stock companies to pay out large dividends and keep reserves at a minimum, he said.

The chance of a major earthquake in California has been about 1% in any year since 1916, he said, but an earthquake insurance company would have to shore up unusually large reserves to pay off losses in “the big one,” Rupp said.

Earthquake Mutual would provide up to $10 million in insurance for houses and business structures with a deductible of 3% or $5,000, whichever is greater, and contents coverage of $25,000.

Rupp estimated that a homeowner in Newport Beach would pay $270 a year for $200,000 worth of earthquake insurance, while a homeowner in West Los Angeles would pay $255 a year for $100,000 worth of coverage.

He said 20 large California independent insurance brokerage firms are contributing fees to fund organizational expenses and will become exclusive general agents of the new company.

He said most business would come from policies the company would provide through big firms like State Farm or Farmers Insurance and from risk managers handling insurance for large businesses.