Coalition Proposes Public Quake Insurer : Insurance: Consumer groups call on the Legislature to create a nonprofit vehicle to solve homeowners crisis.

A coalition of consumer groups, convinced that the California homeowners insurance crisis is being trumped up by insurance companies, called on Gov. Pete Wilson and the Legislature Wednesday to create a public nonprofit corporation to be the sole seller of earthquake and homeowners insurance.

The groups--the Center for Public Interest Law, Consumer Action, the Economic Empowerment Foundation, the Utility Consumers Action Network and the Proposition 103 Enforcement Project--also asked that in the interim, insurance companies be prohibited from withdrawing from the homeowners and earthquake insurance market.

Their proposal for a public insurance vehicle comes as state officials, business organizations and other interest groups are debating how to provide consumers with earthquake protection when the insurance industry considers the coverage too risky for conventional underwriting.

Citing claims of $6 billion or more from the Northridge earthquake, many of the state’s largest carriers have recently either halted or severely restricted their writings of both homeowners and earthquake insurance.

Insurers say they would resume selling homeowners coverage if the state would drop its requirement that homeowners insurers also offer earthquake coverage.

The consumer groups say the industry has seized on the Jan. 17 quake as a way to obtain unjustified price increases on homeowners insurance while abandoning the riskier earthquake line.

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They made the charge in a lengthy letter Wednesday to Wilson and other top state officials. A public insurance corporation, the groups wrote, “would significantly reduce the cost of the coverage by eliminating the profit margin private insurers now demand.”

But Marjorie M. Berte, Wilson’s insurance adviser, said Wednesday that making insurance coverage public still doesn’t solve the problem of how to build up a fund big enough to cover another Northridge-size quake or a bigger one.

“California is in no position to pledge cash or borrowing to cover that kind of catastrophe,” she said.

Kenneth Cooley, a vice president for State Farm Mutual Automobile Insurance Co., California’s largest property insurer, said a California-only public corporation would also lack private carriers’ ability to call in employees from around the country to handle claims after a major disaster.

The consumer coalition’s plan, plus proposals for an insurance industry-financed earthquake pool, are among the topics to be discussed Friday in a meeting at State Insurance Commissioner John Garamendi’s San Francisco offices. Real estate industry officials and bond market experts have been added to the list of business people invited to the second such problem-solving session. The first was held last week.