Proposal Urges Quake Insurance Backed by State

A legislator from an earthquake-hit area and a candidate for insurance commissioner Wednesday proposed that the state guarantee an “affordable” earthquake insurance policy that would be offered by private companies to all California homeowners.

Assemblyman Sam Farr (D-Monterey) and candidate Bill Press told news conferences in San Francisco and Los Angeles that a detailed plan for offering such a policy would have to await legislative hearings on the earthquake that are expected to be held in December.

But they suggested that such an offering by private companies could be guaranteed by the state government in the same way that the federal government guarantees flood plain insurance now.

The idea is that if the private insurer is unable to acquire adequate reserves from policyholder premiums to pay claims by the time the flood or the earthquake occurs, the government steps in and pays the rest.

The Farr-Press proposal follows by two days suggestions made by Assembly members Mike Roos and Gwen Moore, both Los Angeles Democrats, and another candidate for insurance commissioner, Conway Collis, for a different kind of state underwriting of earthquake insurance.

In the Roos-Moore-Collis proposal, the companies would continue to sell earthquake insurance only with high deductibles, as is usually the case now. But the government would step in and pay some of the loss before the deductible was reached.

No government cost estimates were made for either proposal, but, since the earthquake future of the state is unknown, none could be.

Farr and Press suggested that under their plan--which does not address the question of deductibles--people owning property close to a major fault might pay more for their earthquake insurance than people living farther away.

They lamented that, at present, only 15% to 20% of California homeowners carry earthquake insurance and suggested that the number might rise to 80% or 90% under their proposal, which would require all companies selling homeowners insurance to offer the policies to their policyholders.

Press said that even with the federal and state governments agreeing to give a total of more than $4 billion in aid to repair damage from the recent earthquake, and even with private insurers paying more than $1 billion in claims, there will still be perhaps $4 billion in unreimbursed losses, a heavy burden to the victims.

Therefore, he said, by the next earthquake, it is important that a more comprehensive aid program, through established insurance, be in place.