Go National, or Go Broke : Why genuine disaster insurance can’t be a California-only deal

A number of legislators are eager to revive the short-lived California Residential Earthquake Recovery Fund, an insurance pool that was supposed to provide up to $15,000 in quake loss coverage to every homeowner, but which had to be liquidated as it teetered toward insolvency. The impulse to again offer some form of protection against major loss is understandable. But a limited, localized response falls well short of what’s needed.

Far more preferable is an insurance program that would be both affordable and truly broad-based. Probably the best approach is through a national disaster insurance program. Legislation to that end has been drafted. Congress should move quickly to consider it.

The Natural Disaster Protection Act would offer incentives to states to adopt building codes to make new construction less vulnerable to earthquakes, hurricanes, floods and other natural disasters. It would give insurance companies incentives to offer coverage against quakes and other perils not usually included in basic homeowner policies. And it would create a federal reinsurance fund, to be financed by the insurance industry, to reduce the risks of insurance company insolvencies because of exceptionally large claims in natural disasters.

Spreading the risk is essential to keeping premiums affordable. On Jan. 17 no more than 25% of California homeowners carried earthquake insurance, an indication either of a staggering degree of optimism or--much more likely--a pervasive feeling that high premium costs and large deductibles had simply put earthquake insurance out of reach. But natural disasters will ever be with us. There are sound and affordable ways to mitigate their economic consequences. A national program to protect against natural disasters seems clearly to be an idea whose time has come.