4.5 Million to Receive Refunds on State Quake Insurance

Nearly 4.5 million California homeowners who paid premiums last year to obtain state earthquake insurance under a program since repealed by the Legislature will begin receiving refunds next week.

Homeowners can expect about 57% of what they paid; the $125.8-million rebate is highest in counties where the risk of a damaging quake was adjudged the highest and the premium was $60 for $15,000 in coverage. In much of Southern California, including Los Angeles and Orange counties, the return will be the maximum of $34.14.

In some Central Valley counties, by contrast, the risk was rated low, the premium was only $12, and the pay-back will be proportionately less.

In announcing what he called “the successful conclusion of an unsuccessful program,” Insurance Commissioner John Garamendi said Tuesday the checks will be mailed over an eight-week period.

The state paid out about $54 million in damage claims to homeowners who were victims of the Landers, Big Bear, Humboldt County and other 1992 earthquakes before the coverage was terminated on Jan. 1. The expenses of administering the program amounted to more than $49 million.

Gov. Pete Wilson’s insurance adviser, Marjorie Berte, said an audit will be conducted because “any time a government program spends as much on administrative expenses as it spends on benefits for the public, we need to make sure that we understand what mistakes were made in the process of implementing that program and prevent similar disasters in the future.”

Garamendi said in a Los Angeles news conference that the high administrative costs can be attributed in part to start-up and shutdown expenses.

Garamendi noted that his department paid $22 million to Computer Sciences Corp. to design the system, to develop a database of millions of individual records, and then to shut down the program and prepare to send out rebates of the unspent premiums. The company also received $9.6 million to adjust 14,000 claims.

The state’s residential earthquake insurance program, designed to compensate homeowners for damage not covered by most private earthquake insurance--with large deductibles--was proposed by former Gov. George Deukmejian and adopted soon after the 1989 Loma Prieta Earthquake.

However, Garamendi, when he was elected insurance commissioner in 1990, delayed implementing it for a year and then called for its repeal on grounds that historic earthquake damage records showed that the premiums would be insufficient. Only one damaging temblor in an urban area could bankrupt the fund, leaving the state in effect obligated to pay the victims by dipping into general tax funds, the commissioner argued.

Although the matter became embroiled in the political rivalry between Wilson and Garamendi, with the governor suggesting that Garamendi was implementing the program inefficiently and halfheartedly, eventually Wilson signed the legislative repeal.

As it turned out, the 1992 earthquakes, while powerful, were mainly in rural areas where the damage was less extensive, and the state insurance program made more money last year than it paid out, thus opening the way to the present refunds.

Some analysts said that had the deductible been placed at $5,000 instead of $1,000, and had premiums been increased to a uniform $75 throughout the state, the program in the long run would have been able to pay up to $100,000 in damage per dwelling.

But such a calculation assumed the big quakes would not occur until money had collected in the fund. Had a big quake come at the start, even such a revamped program would have gone under.