Quake Bill Stymied by Rate Difference

Squabbling intensified in Sacramento on Tuesday over whether Bay Area homeowners should pay 60% more than Los Angeles homeowners for earthquake insurance, possibly threatening legislative approval of a state earthquake insurance authority.

The issue arose last month when Senate Democratic Leader Bill Lockyer of Hayward blocked Senate passage of the bill, complaining among other matters that Bay Area residents were being asked to pay too much.

On Monday night, at Lockyer’s request, a Senate committee approved an amendment intended to declare that any price difference approved by the state insurance commissioner must be based on a consensus of scientists on quake risks.

But Tuesday the amendment was reported to be undergoing redrafting as legislators and lobbyists began to question whether a scientific consensus on earthquake risk was possible. As a result, action on the Senate floor was delayed again, possibly until Thursday.

Part of the delay comes from Assembly Republicans who expressed concern that the amendment advanced by Lockyer could be disruptive.

“Nobody can agree exactly what it does,” said Mark Leonard, consultant to the GOP-controlled Assembly Insurance Committee. “We’d be adamantly opposed to anything that flattened the rate statewide.”

Another well-placed staff member said Assembly Speaker Curt Pringle (R-Garden Grove) and David Knowles (R-Placerville), the chairman of the Assembly Insurance Committee, were among those negotiating behind the scenes on the redrafting.

Meanwhile, consumer representatives expressed disappointment that Lockyer had not gone further to improve the bill for consumers.

Harry Snyder, West Coast co-chairman of the Consumers Union, criticized another amendment approved in committee dealing with insurers’ quake liability while the new authority is being phased in.

The bill originally said that while premiums were accumulating, insurers would be liable for up to $3 billion in damage claims for the first three years of the authority and lesser amounts for as long as 10 years. The amendment retains the full $3-billion requirement for 12 years.

“Lockyer has made a bad deal,” Snyder said. “He has kept the already insufficient insurer backing of the quake authority in the bill and merely extended it by two years.”

Sandy Harrison, a spokesman for Lockyer, said the Assembly GOP’s concerns and Snyder’s criticisms, show “how hard it is to find a middle ground.” Lockyer wants fairness on rates, but this “is still a tough sell in some quarters,” Harrison said.

Richard Wiebe, a spokesman for Insurance Commissioner Chuck Quackenbush, said that Quackenbush sees nothing in Lockyer’s rating amendment that would limit his discretion to charge different rates in different areas.

But the language of the amendment approved 6 to 1 Monday night by the Senate Judiciary Committee declared that only information “clearly and broadly accepted within the scientific community” could be used as a basis for declaring the risk to be higher in one part of the state than another.

Since scientists from the U.S. Geological Survey, quake modeling firms and academic institutions have often been at odds--some contending that the risk in Los Angeles may actually be higher--this raises the possibility of litigation should Quackenbush decide to charge more in the Bay Area than Los Angeles.

Months ago, Quackenbush spokesmen suggested that based on reports by their own scientists and actuaries of a higher risk in the Bay Area, the rate for coverage would average $5.25 per $1,000 coverage there, and an average $3.29 in Los Angeles. Orange County would be $3.30.

This would mean that for a $200,000 home, the annual charge for earthquake insurance would be $658 in Los Angeles, $660 in most of Orange County and $1,050 in the Bay Area.

Individual charges would vary depending on such factors as the age of the home, the proximity to quake faults and soil conditions, but generally, Bay Area residents would pay considerably more than Southern Californians.

Lately, Quackenbush has cautioned that he has yet to make up his mind about exact rates.