BAY AREA QUAKE : Insurers Face Massive Quake Liability

Insurance companies could be held liable for as much as $3 billion to $4 billion in losses from Tuesday’s earthquake that rocked the San Francisco Bay Area, Richard J. Roth Jr., assistant state insurance commissioner, said Wednesday. The total does not include the cost of repairing roads, bridges and other uninsured structures.

While it will take insurance companies 10 days to two weeks to complete a comprehensive assessment, some experts estimated that insured losses could approach Hurricane Hugo’s record $4 billion. “It’s the Western version of Hugo,” Roth said.

Even before Tuesday’s quake, 1989 had become by far the worst year ever for catastrophes. With 2 1/2 months remaining, the year’s insured losses total $5.64 billion, double the previous record of $2.82 billion in 1985.

In contrast, insurers paid about $350 million in claims as a result of the Whittier quake two years ago.

Ironically, insurance stocks were among gainers in Wednesday’s trading on Wall Street. Investors, according to some market observers, evidently bet that the year’s heavy insured losses will provide insurance companies with a golden opportunity to raise premiums and fatten profits, a theory the industry disputes.

Roth said he figures that insured losses to buildings and other structures from actual shaking by the Bay Area quake will total about $1 billion. Additional losses will be covered by insurance against fire, wrecked vehicles, medical costs and death--not to mention public liability lawsuits.

Roth’s estimate did not include such major public works as the damaged San Francisco-Oakland Bay Bridge, the collapsed portion of the Nimitz Freeway in Oakland or repairs to the Oakland and San Francisco airports. Taxpayers will pick up those bills. Indeed, a Caltrans spokesman said the department is seeking an emergency appropriation to begin immediate public rebuilding.

As for residential damages, only about 20% of homeowners pay the extra premium required for earthquake coverage, the industry estimates. Although California law requires all insurers doing business in the state to offer earthquake insurance, customers are not obliged to buy it.

Meanwhile, insurers rushed “catastrophe teams” of claims adjusters to the stricken area. Los Angeles-based Farmers Group Insurance Cos. flew a team of 50 adjusters to Pleasanton in Alameda County to set up an emergency processing center to handle its customers’ earthquake damage claims.

Farmers spokesman Jeffrey C. Beyer said the company insures about 250,000 homeowners and 450,0000 motorists in the Bay Area. About two-thirds of its automobile policyholders buy “comprehensive” coverage, which covers personal injury and damage to the vehicle, he said.

Fireman’s Fund, based in the Marin County town of Novato, was among major insurers putting out a call for independent claims adjusters to help reach all customers within 24 hours.

Homeowners and businesses without earthquake insurance but covered for other property damages would probably not be covered for collapse from shaking but might collect for damage by water and fire, said Ed O’Hare, spokesman for the industry-supported Insurance Information Institute.

The coincidence of multibillion-dollar national disasters happening in consecutive months generated shock waves among state insurance regulators, some of whom were meeting in Washington to discuss, among other topics, the adequacy of insurers’ reserves for catastrophe.

“What troubles us is the combination of Hugo and the earthquake coming back to back,” said Robin Campaniano, Hawaii’s insurance commissioner and head of the earthquake panel of the National Assn. of Insurance Commissioners. “It may have a significant impact on insurers.”

But in California, Roth said insurance companies should be able to handle the expected Bay Area losses easily--”even if it runs as high as Hurricane Hugo.”

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