Quake Insurance Still Elusive for Homeowners : Rebuilding: Industry woes and pending legislation have left recent buyers virtually unable to find coverage.
Among the lingering problems stemming from the Northridge earthquake, few are as sticky as the crisis surrounding availability of homeowners earthquake insurance.
Eighteen months after the quake, industry officials and consumers alike are keeping one eye on a national disaster insurance plan being crafted in Congress, and the other eye on a cluster of bills percolating in the state Capitol.
Meanwhile, recent home buyers in California must struggle to find carriers offering quake insurance in a market that has been virtually shuttered to new business. And those fortunate enough to have existing homeowners quake coverage face rate hikes that in some cases exceed 100%.
“The homeowners insurance business has never looked this scary,” said Brian Sullivan, publisher of Property Insurance Report, an industry newsletter based in Laguna Niguel. “We had a long stretch of years in which natural disasters were relatively few, and during that period construction in catastrophe zones was explosive. The industry is now facing huge exposure that it hadn’t really thought about until now.”
Indeed, insurers are still reeling from the 430,000 Northridge quake-related claims they received, and combined losses that recently surpassed $12.5 billion, according to Property Claim Services, an industry group that tracks insurance losses. That puts the Northridge quake close to the record of $15.5 billion in insurance losses caused by Hurricane Andrew in Florida in 1992.
Stunned by the magnitude of their quake losses, insurance companies with 93% of the homeowners market share in California have either stopped selling new quake insurance policies or are selling them on a limited basis, said Richard Wiebe, a spokesman for the state Department of Insurance. Many insurers pulled back from homeowners coverage altogether because state law requires insurance companies to offer quake coverage with every homeowners policy they sell.
Farmers Insurance stopped selling homeowners insurance last year because “we simply couldn’t take on any additional exposure,” said David Crocker, a spokesman for the company, which is one of the largest homeowners insurers in California. Farmers was hit with 39,000 Northridge quake claims and has reported losses totaling $1.7 billion. That figure far exceeds the $449 million in quake premiums the company has collected nationwide since 1973, Crocker said.
Since the Northridge quake, Farmers has also been granted permission by the state Department of Insurance to raise its quake insurance rates by 138%, the steepest increase awarded to a large insurer. Statewide, 85 rate increases have been granted since the quake, raising quake coverage premiums an average 68%, Wiebe said.
With options dwindling, homeowners have been forced to scramble for alternative insurance providers, including the California Fair Plan, an industry-supported plan organized by the state that offers bare-bones coverage. The plan was long limited to residents of fire- and storm-prone mountainous regions of the state, but was thrown open to all state residents in July, 1994, after large insurers stopped writing new quake policies.
As a result, on June 30, the Fair Plan had 36,019 policies, up by nearly 10,000 from a year earlier, said Mike Harris, a spokesman for the Fair Plan.
The Automobile Club of Southern California has also seen a mini-boom in its homeowners policy writings, available only to its members. From January through May, the number of homeowners policies grew by 12% to 86,372, matching in five months growth that ordinarily takes a year, said Richard Suit, manager of regulatory affairs for the Auto Club.
Some large insurers are continuing to write new homeowners policies on a very limited basis. State Farm agents, for example, can write new quake policies only if they have surpassed goals to reduce their individual homeowners policy exposure levels by 4%. But more than a dozen State Farm agents in the San Fernando Valley said they remain overexposed and unable to sell new homeowners policies.
Gil Holtz, a State Farm agent based in Reseda, said he turns away up to 20 potential customers a week. Even if he could sell a few policies, he said he’s not sure he would want the trouble.
“I have very close friends [without quake insurance] who ask if there’s something I can do,” he said. “I’d rather not be able to write than have to choose who to turn down.”
Legislators have proposed a number of means of easing the crunch on homeowners insurance. Congress is considering a nationwide insurance program that would assume some of the risk private insurers face in the event of a catastrophe.
Four bills moving through the state Legislature are expected to end in a compromise that would enable insurers to resume writing homeowners policies while a statewide pool or plan would reduce their vulnerability to huge losses brought by a catastrophe.
In the meantime, homeowners must purchase policies through the Fair Plan, or search for coverage among the numerous smaller companies still writing homeowners insurance.
“The best thing for consumers to do,” Sullivan said, “is to dial the phone until your fingers fall off.”
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Northridge Quake Insurance Payments Eighteen months after the Northridge earthquake, insurance companies have settled 95% of the 430,000 quake- related home, auto and commercial building claims they received. Earthquake losses for the insurance industry have totaled $12.5 billion so far, and many of the largest insurers have stopped writing new quake insurance policies for homeowners. *
10 Large Insurers: Aetna Life and Casualty Number of quake- related claims: 2,478 % Settled: 90% Quake losses to date: $114 million Availability of new quake insurance for homeowners: available Quake insurance price hike since the Northridge earthquake: 38% *
10 Large Insurers: Allstate Number of quake- related claims: 45,900 % Settled: 95% Quake losses to date: $1.06 billion Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: 100% *
10 Large Insurers: Farmers Number of quake- related claims: 39,000 % Settled: 94% Quake losses to date: $1.7 billion Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: 138% *
10 Large Insurers: Fireman’s Fund Number of quake- related claims: 4,500 % Settled: 94% Quake losses to date: N/A Availability of new quake insurance for homeowners: available Quake insurance price hike since the Northridge earthquake: 26% *
10 Large Insurers: ITT Hartford Number of quake- related claims: 3,000 % Settled: 98% Quake losses to date: $66 million Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: none *
10 Large Insurers: Republic Number of quake- related claims: 5,875 % Settled: N/A Quake losses to date: $155 million Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: 100% *
10 Large Insurers: Safeco Number of quake- related claims: 8,500 % Settled: 79% Quake losses to date: $198 million Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: 37% *
10 Large Insurers: State Farm Number of quake- related claims: 114,000 % Settled: 96% Quake losses to date: $2.53 billion Availability of new quake insurance for homeowners: limited Quake insurance price hike since the Northridge earthquake: 68% *
10 Large Insurers: 20th Century Number of quake- related claims: 46,100 % Settled: 93% Quake losses to date: $864 million Availability of new quake insurance for homeowners: not available Quake insurance price hike since the Northridge earthquake: 17% *
10 Large Insurers: United Services Automobile Assoc. Number of quake- related claims: 9,751 % Settled: 97% Quake losses to date: $208 million Availability of new quake insurance for homeowners: available Quake insurance price hike since the Northridge earthquake: none *
10 Large Insurers: Industry totals and averages Number of quake- related claims: 430,000 % Settled: 95% Quake losses to date: $12.5 billion Availability of new quake insurance for homeowners: limited Quake insurance price hike since the Northridge earthquake: 68% (industry average) NA: Not available Sources: Company reports and the California Department of Insurance
