Lawmakers Poised to Approve Quake Plan : Legislation: ‘Mini-policy’ clears key hurdle. Meanwhile, conference committee passes measure for state insurance authority.

After more than a year of struggling with California’s residential insurance mess, the Legislature seems ready to approve a stripped-down earthquake insurance policy that will cost as much as a traditional policy but offer only about half the coverage.

If, as expected, the measure clears the Legislature and gets Gov. Pete Wilson’s signature, insurers could begin issuing the new “mini-policy” to new customers on Jan. 1, and to existing customers as their current policies expire.

Meanwhile, an Assembly-Senate conference committee voted 6-0 Tuesday to give a tentative green light to a much more ambitious proposal: Insurance Commissioner Chuck Quackenbush’s novel plan for a privately funded, state-run earthquake insurance authority.

That plan, which appeared dead earlier this session, was revived over the weekend when Quackenbush dropped a controversial section that would have exposed homeowners insurance policyholders to stiff surcharges in the event of a major earthquake--even if they didn’t have earthquake insurance or live in the affected area.

Under the compromise, the Legislature would give the plan a preliminary go-ahead now but withhold final approval until next year. In the meantime, Quackenbush would have to obtain formal assurances that the authority is financially viable and can qualify with the Internal Revenue Service as a tax-exempt organization.

The insurance industry badly wants the authority to be created because it would cap the industry’s potential losses in an earthquake at $6 billion. The toll from the 1994 Northridge earthquake is $12 billion and still rising.

It is too early to tell whether the Legislature’s last-minute flurry of activity will succeed in breaking the industry’s virtual moratorium on new homeowners insurance, but the betting is that it will help.

“It’s at least a step in the right direction,” said Bill Sirola, spokesman for State Farm Mutual Automobile Insurance, the state’s largest residential insurer.

State Farm and other big insurers pulled back from writing new homeowners policies after the Northridge quake because of a state law requiring them to offer earthquake coverage to their homeowners policyholders.

The mini-policy bill (AB 1366), which was approved by the conference committee on Monday, keeps that requirement, but on a substantially reduced scale.

Under the bill, by Assemblyman David Knowles (R-Placerville), policies would carry a minimum 15% deductible. The standard in California had been 10% before the Northridge quake.

The measure would also impose tighter restrictions on coverage of the contents of a damaged home by limiting it to either $5,000 or 10% of the loss from structural damage. Swimming pools, decks, detached garages, certain patios and other structures would not be covered.

Insurers would have to provide at least $1,500 for expenses of displaced homeowners.

To emphasize that coverage under the mini-policy would be vastly scaled down, the bill would require insurers to warn customers that “these coverages may differ substantially from and provide less protection than the coverage provided by your homeowners insurance policy.”

“It’s a reasonable compromise,” said Harry Snyder, lobbyist for Consumers Union. “The Legislature made the insurance industry stay in [the homeowner-earthquake business] and consumers must accept a policy that is less than they may want.”

Many California customers of Farmers Insurance Group are already getting an advance look at the mini-policy idea. Quackenbush earlier this year gave Farmers permission to market a scaled-down earthquake policy much like the one the Legislature is poised to implement statewide.

Had such a policy been standard at the time of the Northridge quake on Jan. 17, 1994, insurers estimate it would have cut their residential claims losses by as much as half.

Of course, that’s another way of saying it would have shifted several billion dollars worth of losses from insurers to homeowners.

Snyder opposes the earthquake authority and vowed to fight it on the floors of the Assembly and Senate if it is approved by the conference committee.

He said that if a powerful quake caused enough damage to exhaust the authority’s $10.5-billion fund, the Legislature would feel morally obligated to make up the difference out of the state treasury.

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Staff writer Carl Ingram in Sacramento contributed to this report.