With no legislative fix on the immediate horizon for California's earthquake insurance problems, Insurance Commissioner Chuck Quackenbush on Thursday announced he would extend for another six months the emergency earthquake insurance program of the California Fair Plan, the industry-sponsored, high-risk insurance pool.
The emergency program, created last summer by former Insurance Commissioner John Garamendi as a short-term stopgap, was due to expire next Friday.
Neither Quackenbush nor the insurance industry is satisfied with the Fair Plan program, which provides stripped-down fire and quake insurance at high prices.
But without a long-term solution in the offing, Quackenbush decided that letting the program expire might trigger a worsening of the insurance availability problem that threatens to disrupt the California housing market.
"If you allow it to lapse, you put a major crimp in the real estate industry of California, and that threatens the economic recovery," Quackenbush said Thursday.
Most lenders require at least a basic fire policy on a home before issuing a mortgage. State law requires insurers to offer earthquake coverage to their residential insurance policyholders, and carriers have sharply cut back on their writings of all new dwelling policies--fire, homeowners and earthquake. Insurers face an estimated $11.2 billion in losses from the 1994 Northridge quake.
Fearing a crisis, Garamendi shoved the Fair Plan into the breach. The program, designed to cover hard-to-insure homes in wildfire zones and businesses in the inner cities, was extended statewide.
Since the emergency plan took effect last July 1, Fair Plan has added about 28,000 residential policies and 3,500 earthquake policies--a growth rate of 27%, General Manager Stuart M. Wilkinson said.
Extending the emergency program "gives us the breathing room we need to try to fashion a more permanent solution," said Alex Creel, vice president for governmental affairs of the California Assn. of Realtors.
The state Legislature is considering bills to "de-link" homeowners and earthquake insurance, but Quackenbush said he would oppose that approach without assurance that earthquake insurance would still be available.
Quackenbush and many consumer advocates and insurers think the ultimate solution may be the proposed national disaster insurance pool covering all kinds of catastrophes, from earthquakes to hurricanes to wildfires. But with the new Republican congressional majority occupied with welfare reform, tax cuts and other legislative priorities, few observers believe a federal solution is likely this year.
Thus, Quackenbush is pushing the insurance industry to help him develop a stand-alone earthquake insurance program for California with a $30-billion reserve fund. Part of the capital would come from insurers, but most would be provided by investors willing to make a high-risk bet in hopes of a high return--much as investors in Lloyd's of London do.
Although companies are renewing policies for existing customers, homeowners such as Frank Wycko of Rosemead are discovering that rate increases granted over the last several months by Quackenbush and Garamendi can pack a wallop.
Wycko's bill for earthquake insurance alone jumped from $919 to $1,827 a year. "This is not a laughing matter for a retired person," he said.