Quake Insurance Bill Delayed; Plan May Be Set Back Until ’97

Lawmakers on Thursday gave up an attempt to meet a May 1 deadline set by Insurance Commissioner Chuck Quackenbush for approval of a state-run California Earthquake Authority to coordinate the sale of homeowners quake insurance.

The chairman of a legislative conference committee working to find a compromise on two widely divergent bills on the matter, state Sen. Charles M. Calderon (D-Whittier), said he now estimates that it will take two to four weeks to bring a final proposal to the floors of the Assembly and Senate.

Such a delay could have the effect of putting off until next year operation of the authority, which would cap insurance company losses in future earthquakes to $6 billion. No further meeting is scheduled until May 2.

Quackenbush originally told the Legislature he wanted enactment by April 1 and by the two-thirds majority necessary to create the authority immediately. A simple majority vote would not allow creation of the authority until Jan. 1.

Quackenbush had warned that without fast action, $1.8 billion in reinsurance commitments necessary for the authority to function would lapse. If so, his office estimates, insurance companies might not renew up to a million homeowners policies and create an insurance availability crisis.

When April 1 passed without action, the commissioner suggested he might be able to hold the reinsurance commitments through May 1.

Quackenbush was not present at the conference committee sessions Wednesday night and Thursday, but afterward his representative, Deputy Commissioner Greg Butler, said, “If this takes to July, we’ll do it in July.”

That, however, could entail a new, months-long effort to secure the backing of reinsurers. Reinsurance is a process by which an insurer pays a premium and secures a commitment that other insurers will help pay any damage claims above a certain amount.

The two days of hearings here this week revealed there are many issues that must be resolved before the earthquake authority can win passage.

The most serious dispute involves the state’s decade-old requirement that insurance companies selling homeowner insurance in the state must also offer earthquake insurance to go with it. This dispute pits Assembly Republicans against Senate and Assembly Democrats, and it is primarily holding up final action.

Under the original authority concept, individual insurance companies would continue to sell quake policies, but all premiums and claims would be handed to the authority.

But a bill by Assemblyman David Knowles (R-Placerville), while creating the authority, would also drop the decade-old requirement that every company offer quake insurance with all homeowners’ policies. This is known as “delinkage” and could make quake insurance much more difficult to obtain.

In contrast, the competing bill, by Calderon, would create the authority but continue to link the sales of homeowner and earthquake policies. In addition, Calderon and the Democrats would also specifically provide that if the authority’s resources to pay claims should be exhausted by a big quake, the insurance companies would be required to offer quake coverage on their own, regardless.

Knowles, a member of the six-member conference committee, did not show up for Thursday’s meeting, and other Republicans refused to even discuss the delinkage issue in his absence. Knowles told a reporter Wednesday evening that, in fact, he is not even sure the Earthquake Authority is a good idea.

Calderon, on the other hand, said that without continued “linkage,” no quake insurance bill will clear this year. “There’s not going to be delinkage,” he summarized in an interview. “But there could be an earthquake authority.”

Because the Assembly is under Republican control and the Senate under Democratic, there is an impasse--at least for the time being.

Calderon reiterated Thursday that he joins Quackenbush in supporting the earthquake authority. Without it, he believes, many insurance companies, fearing their exposure to a possible future big quake, will stop writing homeowners and earthquake policies in California.

At the same time, the senator acknowledged that under the authority, homeowners would have considerably less coverage than before. For one thing, under the authority, all policies would carry a 15% deductible, while many present policies offer a 10% deductible, and sometimes a 5%.

Under a 15% deductible, the first $30,000 damage to a $200,000 house would not be covered.

Another conference committee member, state Sen. Herschel Rosenthal (D-Los Angeles), said Thursday that he thinks the partisan division is too great to allow passage of anything this year. He has suggested that Quackenbush has exaggerated the possibility of an insurance availability crisis.