IRS Lifts Roadblock to Insurance Agency
The Internal Revenue Service--reversing course for the second time--said Tuesday that it would allow a crucial tax exemption for California’s proposed $10.5-billion, state-run earthquake insurance program.
A spokesman for Insurance Commissioner Charles Quackenbush said the state received word of the IRS’ decision in a brief message from Washington.
Major insurers, the principal backers of the proposed California Earthquake Authority, say the federal tax exemption is necessary to allow the pool’s assets and accrued interest to grow. Without it, they say, the program cannot succeed.
“We are pleased to hear that the IRS has reinstated the tax-exempt status to the CEA. With tax-exempt status . . . the CEA will have more dollars to pay claims following an earthquake,” said Dan Dunmoyer of the Personal Insurance Federation of California.
Months ago, the IRS said it would allow the exemption. On May 2, it withdrew its permission in a terse two-line note. On Tuesday, it reinstated permission. The agency did not elaborate on its action.
As the IRS’ ruling was announced, a two-house conference committee continued to meet to work out a legislative agreement on the controversial proposal, which insurers say is necessary to bring stability to a homeowners insurance market damaged by the January 1994 Northridge earthquake.
Quackenbush’s department has reported that nine of 10 homeowners insurance companies have limited coverage or halted new policies, potentially leaving large numbers of homeowners without coverage.
Consumer groups have challenged those figures.
California’s “linkage law” requires homeowners’ insurers to also offer earthquake coverage to their customers. But rather than provide the high-risk quake coverage, companies are scaling back, insurers say.
Consumer groups--including Consumers Union, the Oakland-based United Policyholders and the Proposition 103 Enforcement Project--say the insurers have created a crisis atmosphere to push through the CEA and avoid legitimate risk.
