Informed Opinions on Today’s Topics : State Quake Authority on Shaky Ground

Although given preliminary approval by the state Legislature and Gov. Pete Wilson, the future of the proposed California Earthquake Authority is in doubt.

The privately financed, publicly managed agency would sell earthquake coverage on behalf of insurance companies and limit insurers’ losses in the event of a catastrophe such as the Northridge earthquake.

Insurance industry experts have predicted the total payout for the 1994 temblor could exceed $12.5 billion. Such staggering numbers prompted some insurance companies to discontinue writing earthquake policies.

The earthquake authority, which still needs final approval from the Legislature next year, is an attempt to offer homeowners earthquake coverage but protect insurers from major losses. Total payments after a disaster would be capped at $10.5 billion, and that money would be paid with a combination of reinsurance, new assessments on policyholders and capital raised by investors.

Yet, while insurance lobbyists complain about the lack of control they would have over the authority, consumer groups are also dissatisfied.

Will the California Earthquake Authority solve the disaster insurance dilemma?

State Assemblyman Richard Katz (D-Sylmar):

“It’s important to make sure that insurance is available to homeowners. . . . The earthquake authority is a way to do that. It’s not a perfect plan. . . . The CEA is an attempt at a trade-off. You pay a bit more in your premiums, and you get less coverage than you had before. But the good thing is you can get earthquake insurance where you would not get any now. Given the likelihood of another earthquake in the San Fernando Valley, something is better than nothing.”

Harry Snyder, co-director of the West Coast regional office for Consumer’s Union:

“The state of California should not sell property insurance to homeowners. What the companies want to do is get out from under the obligation that they voluntarily took on. . . . We should not be writing earthquake coverage for homeowners. We have schools to run. We have services to provide. . . . What we will end up with is a savings-and-loan-type bailout that our state just cannot afford.”

Ina De Long, executive director of United Policy Holders and a member of a panel appointed to draw up the California Earthquake Authority:

“I wish we had other choices. I think the insurance industry itself could have solved this dilemma. In fact we may not have had this dilemma at all were it not for the insurance industry. I don’t see where the state had any choice but . . . come up with a plan. Will it work? Very possibly. Of course if we have the Big One, I don’t think there is anything that will work. There isn’t any program that the state could set up to take care of that disaster. . . . I’m not real big on having a lot of government. . . . I think the insurance industry has too much control now and that’s what led to this disaster.”

Pete Gorman, Western regional manager for the Alliance of American Insurers, an insurance trade association representing 350 companies:

“The opportunities are still there to change it and so we support the CEA as it was written by the [insurance] commissioner. We have concerns about the current language and we hope that they would be considered early next year when it’s finalized and enacted.”