Quake Insurers Expect Price Hikes, Less Coverage : Government: Assembly panel hears first overtures from an industry seeking less regulation. Representatives cite high costs of Northridge temblor.

Armed with growing damage estimates, a parade of earthquake insurance experts told the Assembly Insurance Committee on Tuesday that consumers will be lucky to pay more for less coverage in the post-Northridge market.

That is, if quake policies are made available at all.

In a hearing laced with doomsday scenarios of companies buckling under the weight of Northridge quake damage claims, Assembly members heard the first overtures from an industry seeking less regulation as a top priority this legislative session.

In making their case, seismic experts and insurance company representatives painted a portrait of an industry sorely unprepared for the breadth of the damage caused by the Northridge temblor--or for the next quake, for that matter.

Staggering estimates now place the cost of overall private damage at $20 billion, with about $12 billion of that borne by insurance companies paying off on policies. One Farmers Insurance Co. expert, chief actuary Bob Downer, estimated private sector damage as high as $40 billion.

“The lesson learned from the Northridge quake is that we cannot do business as we have in the past,” said Haresh Shaw, whose firm Risk Management Solutions Inc. had underestimated the cost of a Northridge-style quake by about 40%.

For the consumer, the changes sought by the industry mean a bumpy road as companies seek to wiggle out of the requirement that they offer earthquake insurance along with homeowners policies--while also seeking sizable rate increases and the approval to offer a no-frills policy.

State Insurance Commissioner Charles Quackenbush, returning to the Assembly for his first committee appearance since leapfrogging in November to his statewide elected post, predicted that insurance companies would bail out of the earthquake market altogether if not allowed to change the way they do business.

Quackenbush, who vaulted to his post with the help of $2.3 million in insurance industry campaign contributions, told Assembly members that he favors “delinkage” if earthquake insurance is made available. The term refers to the industry’s request to sever the legal requirement that it offer earthquake policies along with homeowners policies.

He also supports letting companies increase deductibles and limit damage payouts in a back-to-basics policy, he said. Such a policy would cover only structural damage to a house, leaving swimming pools, patios and interior breakables uncovered.

Witnesses at Tuesday’s hearing offered a variety of reasons to explain why insurance companies were so unprepared for the Northridge temblor.

For one thing, no one counted on such severe up-and-down jolts from a fault underlying a heavily populated urban setting. Secondly, insurance companies failed to keep good data on the policies they sold, obscuring the risks they faced if a big temblor hit.

In the region hit by the 1994 Northridge quake, 40% to 50% of residents were insured--double the industry standard.

“We’ve had an increase in seismic (activity) in California and the public is very much aware of it,” said Charles Scawthorn of EQE International, a risk assessment firm.

At least 460,000 claims have been filed, with nearly one-fourth remaining unsettled. In some cases, insurance companies have canceled or declined to renew policies while policyholders have claims pending on their damaged homes.

Gina Calabrese of the Proposition 103 Enforcement Project urged legislators to declare such action an unfair business practice. She also called for greater scrutiny of companies’ requests for rate increases of 100% or more. Since the Northridge quake, 98 firms have sought rate increases.

Assembly members also heard a warning that the state’s FAIR plan to make homeowners insurance available in high-risk regions will expire March 31.

* CITY HALL UPGRADE: The structure is the tallest yet to be seismically retrofitted with rubber shock absorbers. B1