Insurers Request Federal Help on Quake Coverage

The insurance industry called on Wednesday for federal help in the wake of last fall’s California earthquake, saying it would be unable to bear the costs of a major tremor.

“Insurers cannot finance a catastrophic earthquake,” Franklin W. Nutter, chairman of an insurance industry coalition on quake dangers, told a House Banking subcommittee on insurance.

“While it is not possible to predict insured losses from all events at all locations . . . it is safe to say that the (earthquake) peril presents the industry with a loss of catastrophic proportions,” said John P. Drennan, a vice president of Allstate Insurance Co.

There is a nationwide threat of earthquakes, said Arch C. Johnston of the Center for Earthquake Research and Information at Memphis State University.

A “major destructive earthquake in the eastern United States is the quintessential example of the low-probability-high-consequence event that invites complacency and defeats mitigation efforts. It is also the nightmare of the insurance industry,” Johnston said.

The long-term solution to quake damage is to design and build tremor-resistant buildings, Grant C. Peterson of the Federal Emergency Management Agency told the subcommittee. But he said his agency is studying possible loss-reduction provisions that could be included in a federal insurance program if one is developed.

Drennan said that if the 1906 San Francisco quake occurred today insured losses would total at least $3.4 billion, and a repeat of the 1811-12 tremor at New Madrid, Mo., would mean paying $1.7 billion.

Nutter, however, estimated that insured quake claims in another 1906 San Francisco quake could climb to $13.5 billion, with billions more in fire losses and bodily injury claims.

Nutter proposed establishing a federal earthquake insurance program similar to the government’s flood insurance--backed by federal money but administered by private companies.

Any federal insurance program must include requirements that efforts be made to reduce quake damage, said George Bernstein of the National Earthquake Hazards Review Program.