Insurers Are Finding a Friend in Quackenbush

California’s insurance commissioner is supposed to look out for consumers. But Chuck Quackenbush appears to be championing the insurance companies’ interests instead in the ongoing controversy over whether the state should establish an earthquake insurance authority to help provide coverage. Every time discussions have reached a critical point, as they have again with a bill in the Senate, the commissioner has chimed in with warnings that more homeowners are finding it difficult to buy insurance, nudging along the idea of the state authority.

In doing so he’s adroitly clothing his industry preference in the guise of a consumer problem. On Wednesday he said he is receiving thousands of calls from homeowners who are having a harder and harder time finding homeowners insurance.

Though some small companies have moved into the market to offer coverage, there’s no question that securing homeowners insurance today at reasonable prices is becoming a pressing problem. The real question is: What is the solution?

Quackenbush claims the only solution to ease the problem is for the Legislature to enact his proposal to create the California Earthquake Authority, which would write earthquake policies. There are of course other options, including the ideal solution, a national disaster insurance plan that would sell federally backed policies. But the proposed California Earthquake Authority does provide a framework for a solution. The devil is in the details.

And those details as now constituted favor insurers at the expense of consumers. Consequently consumer groups, including Consumers Union and the Prop. 103 Enforcement Project, have labeled the CEA an industry bailout. The Senate has recognized this imbalance, and some senators are pressing for changes to better address consumer interests, which include requiring greater infusion of capital to the CEA by the big insurers. Companies that participate in the CEA should be required to write new policies, allow installment payments and maintain a contingent liability until an adequate capital surplus is built up.

So far, insurers have not embraced these changes. Nor has Quackenbush.

The big insurance companies that sell the majority of the homeowners policies in the state are more reluctant to write new ones since the 1994 Northridge earthquake and the toll it took on insurers. Before the quake, in their drive for market share, the major companies aggressively sold homeowners and earthquake policies, which gave them the greatest financial exposure in the aftermath. Thus they have the most to gain from the CEA, which would greatly decrease their overall share of exposure in the event of another major quake.

If the state is to assume the risk of providing earthquake insurance, it should move carefully, with all objections and concerns fully addressed. When an insurance commissioner appears all too willing to get the state involved in a private business like insurance, the red flags go up, and with good reason.