Tremors Through the Economy : Losses Could Exceed Loma Prieta Quake

Insured losses from Monday’s earthquake in the San Fernando Valley could exceed the $960 million paid out after the 1989 quake in the San Francisco Bay Area, according to preliminary estimates by insurance groups.

However, those early estimates were accompanied by repeated cautioning that it will be days--if not weeks or months--before the full costs of Monday’s quake can be tallied.

Still, officials at two insurance industry groups said initial reviews of damage to freeways and other public facilities throughout the affected region indicate that homeowner and business losses--both insured and uninsured--could be more extensive than those suffered in the Loma Prieta quake more than four years ago. That earthquake was the fifth most costly disaster for insurance companies in the United States.

“The damage in Los Angeles to freeways and other parts of the public infrastructure appears more widespread than what occurred in the Bay Area,” said James Snyder, president of Personal Insurance Federation of California, an industry association in Sacramento.

Snyder’s assessment was echoed by officials at the Insurance Information Institute in New York, who predicted that insured losses would hit the $1-billion mark.

But insured losses are expected to be only a small part of the earthquake’s impact.

Relatively few homeowners and merchants carry earthquake insurance, and deductibles on the special policies generally range up to 10% of a policy’s coverage. In the 1989 Loma Prieta quake, for example, the $960 million in insured losses represented only about 14% of the estimated $7 billion of total property damage caused by the disaster, according to the Insurance Information Institute.

Despite more extensive damage locally, Snyder said homeowners in Southern California may be better off than those in the Bay Area because many more residents of this region have opted to buy special earthquake insurance. About 40% of residential policyholders in Los Angeles and Orange counties have the additional coverage, he said, compared to an average of 25% statewide.

Insurance companies said they are prepared for significant, but still unknown, losses.

State Farm Insurance, the state’s largest residential insurer with 1.4 million homeowner policies, said about 300,000 of its policyholders in Southern California have earthquake coverage.

A State Farm spokesman said it paid out a total of $141 million in insurance claims to 31,000 homeowners after the Loma Prieta quake. He said claims were filed by about 18% of policyholders. If that same percentage of policyholders were to file claims as a result of Monday’s San Fernando quake, there would be 54,000 claims.

It’s a different story for businesses suffering quake damage.

According to the Insurance Research Council, just 15% to 25% of California business owners are covered by earthquake insurance. Industry officials estimated that big businesses and large property owners were more likely to have the insurance than small merchants.

Still, industry experts said many small merchants forced to close their doors for quake repairs may be covered by business interruption insurance, if not for the actual quake damage.

Still other homeowners and merchants may be covered by the fire and flooding portions of their policies if the quake sparked a fire or caused water damage to their properties. And, fortunately for car-dependent Southern Californians, earthquake damage to vehicles is covered under virtually all standard auto insurance policies.

“Residents should review their insurance policies immediately and then contact their insurance company,” advised Richard Donnigan of Allstate Insurance, the state’s second-largest residential insurer.

Within hours of the quake Monday, most major insurance companies began dispatching claims adjusters to the region to handle an expected deluge of inquiries from homeowners and merchants.

While several companies said their newly arriving adjusters have experience handling earthquake claims, other companies said they would rely on special catastrophe adjusters already in the region since November for the Malibu and Laguna Beach fires.

Because many branch offices in the San Fernando Valley were badly damaged by the quake, several insurance companies hauled in trailers, outfitted as mobile offices, for the adjusters to use. Most major insurance companies also established toll-free information hot lines for area residents.

Even insured property owners may face staggering repair bills since deductibles typically are 10% of a policy’s coverage. And the insurance doesn’t come cheap.

In California, the cost of an average earthquake policy costs $2 for every $1,000 of coverage, meaning coverage on a $200,000 home would cost $400 annually, according to the Insurance Information Institute. The agency said the average homeowner premium, without earthquake insurance, runs $554 in California.

Touring damaged areas Monday evening, State Insurance Commissioner John Garamendi said some residents are certain to question the Legislature’s decision to repeal the statewide earthquake insurance law, a position he completely supported.

The law had established a program that covered losses equal to the amount of homeowners’ deductibles. After it took effect in 1992, legislators quickly repealed it, fearing the fund would not build up fast enough to ensure adequate coverage if a quake would hit within the first year. The state then refunded a large percentage of premiums paid by homeowners.

Garamendi said repeal remained the proper course because the state fund would not have paid each homeowner enough to make any substantial repair.

“I had said we ought not to fool people” with promises that could not be fulfilled, he said.

Times staff writers Bill Stall and Thomas S. Mulligan contributed to this report.

Costliest Calamities

Largest insured losses for U.S. disasters:

Loss Disaster Date (billions) Hurricane Andrew Aug., 1992 $18.0 Hurricane Hugo Sept., 1989 4.2 Oakland fires Oct., 1991 1.7 Hurricane Iniki Sept., 1992 1.6 Loma Prieta earthquake Oct., 1989 0.96 Winter storms in 41 states Dec., 1983 0.88 Los Angeles riots April, 1992 0.77 Winter storms, East Coast April, 1992 0.76 Hurricane Frederic Sept., 1979 0.75 Hurricane Alicia Aug., 1983 0.68

Sources: Insurance Information Institute; Personal Insurance Federation