Lockyer, Pringle Reach Deal on Quake Insurance Agency

A bipartisan deal was struck Thursday on legislation forming a state earthquake insurance agency, and within minutes the lead insurance lobbyist in the state said three big companies would resume sales of homeowners insurance.

Dan Dunmoyer, lobbyist for the Personal Insurance Federation and captain of the industry effort to put earthquake insurance in the hands of the state, said he had been informed that sales by State Farm, Allstate and Farmers would begin in 90 days.

“They will start selling again the day they are able to transfer their quake coverage to the new California Earthquake Authority,” Dunmoyer said.

The authority will be established after the Legislature completes action implementing the agreement, Gov. Pete Wilson signs it and Insurance Commissioner Chuck Quackenbush is able to form the agency.

Despite the bipartisan deal and the lobbyist’s assurances, key consumer leaders still expressed opposition. They noted that quake coverage will be less comprehensive than in the past, and there will be limits in the ability of the state agency to pay claims.

Harry Snyder, the West Coast co-director of the Consumers Union, said the quick announcement of the companies’ reentry into the homeowners market showed that “blackmail has prevailed.”

“Once the legislators capitulated and agreed to bail out the industry, they released the hostages--the homeowners of California,” Snyder said. “It’s an obscene example of corporate power running California.”

The deal announced Thursday afternoon was principally between Senate Democratic Leader Bill Lockyer of Hayward and Republican Assembly Speaker Curt Pringle of Garden Grove.

It involved slight changes in legal language, making it clear that homeowners in different parts of the state could be charged different rates for the quake insurance, even if scientists disagreed on how risks varied.

The plan has been to charge about 60% more in the Bay Area than in Southern California, but Lockyer has been pressing for some reduction in the difference. It was not clear if any private agreement may have been reached on this point with Quackenbush, who must set the rates.

Lockyer was the principal opponent of the bill when it stalled in the state Senate on July 11, after passing the Assembly, so his agreement with Pringle on Thursday virtually guarantees passage.

Lockyer said he intends to pass the new amendments through the Senate today and send them to the Assembly for action in that house next week. Afterward, he said, the Senate will approve the overall earthquake authority bill and send it and the amendments in separate legislation to Wilson for his signature.

One impediment is that Wilson has yet to agree to sign the amended bills, but this is regarded by both sides in the Legislature as a virtual certainty.

Quackenbush deputy Richard Wiebe cautioned that insurers controlling 70% of the existing market in quake coverage must also agree to adhere to the quake authority and contribute $1 billion in initial financing before it can take effect.

Minutes after the state Senate adopted amended language, Dunmoyer announced that the big three companies--with 53% of the homeowners market--would resume selling new homeowner policies.

Dunmoyer, who represents State Farm and Farmers, said Allstate has made its plans clear in a separate statement.

The earthquake authority will collect premiums through the companies but administer and pay all claims. Its resources will be limited to about $10.5 billion, and a huge quake could exhaust those funds, leaving victims not fully covered.

The homeowners availability crisis resulted when the companies stopped their sales. They explained that they were worried about their overexposure to big quake claims that would eat into homeowners premiums as well.

Relieved of responsibility for earthquake insurance, companies will find their overall exposure reduced and feel it is safe to sell new homeowners coverage, Dunmoyer said.

But consumer leaders were still unhappy.

Insurance reformer Harvey Rosenfield said: “California consumers are going to pay dearly for this bipartisan betrayal by Sacramento politicians who are enslaved to the insurance industry’s campaign contributions.”