Headlong Rush on Quake Authority : It’s too soon for approval of Quackenbush plan

Today, less than seven weeks after state Insurance Commissioner Chuck Quackenbush first proposed a state-financed earthquake insurance authority, the Legislature is due to vote on the complex idea. Such hasty action in the last scheduled day of the 1995 session defies both the legislative process and common sense. Thumbs down to this bill. Too many questions about Quackenbush’s proposal remain unanswered.

The insurance commissioner’s novel plan calls for establishing a nonprofit entity, the California Earthquake Authority, to sell earthquake coverage. Since having to make huge payouts after the 1994 Northridge earthquake, most big insurers have either stopped writing or have curtailed new homeowner policies in order to get around state law that requires companies to offer both earthquake and homeowners policies.

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NORTHRIDGE IMPACT: Clearly the industry wants out of earthquake insurance altogether. Toward that end it is willing to contribute $1 billion to funding the proposed state authority. Additional money, if needed, would be raised from other sources.

Quackenbush’s draft legislation was shoved into another piece of earthquake legislation, AB 13, sponsored by Assemblywoman Juanita M. McDonald (D-Carson), in an Assembly-Senate conference committee. No hearings were held. The bill simply was rammed through after some adjustments were made to the Quackenbush plan.

The legislation would give a preliminary go-ahead to the Earthquake Authority but withhold financial approval until next year. To us, the process seems backward.

The authority is merely a concept at this point. The state should have a clear picture of its potential liability before giving even preliminary approval. If private insurers, who have access to the best such assessment data, are desperate to get out of the earthquake insurance business, the Legislature should be extremely cautious in assuming the risk, even in principle.

AB13, however, does authorize $500,000 for Quackenbush to help him obtain formal assurances that the state authority would be financially viable and could qualify with the Internal Revenue Service as a tax-exempt organization.

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A GOOD ALTERNATIVE: The Legislature, meanwhile, has a good alternative for relief--to both homeowners and insurers--in AB 1366, sponsored by Assembly member David Knowles, a Placerville Republican. Insurers would still be required to offer earthquake insurance but the Knowles bill allows for a “no frills” policy. The standard deductible would be 15% (currently it is 10%). There would be tighter restrictions on coverage of contents. Swimming pools, decks, detached garages and certain patios and other structures would not be covered.

Until Washington enacts a national disaster insurance program, AB 1366 could provide some relief. AB 13 clearly puts the horse before the cart. It should be shelved, at least for now.