New Rates for Quake Insurance Vary Widely

Homeowners in Orange County and across California would pay vastly different amounts for earthquake insurance, depending on where they live and the age of their homes, under rates approved by the new California Earthquake Authority.

The new rates are already being criticized by the Wilson administration and consumer groups, and late Thursday, Insurance Commissioner Chuck Quackenbush said he might reject or modify them before the authority starts up full operation Dec. 1.

“He will closely examine the rating plan,” said spokesman Richard Wiebe. “He will carefully consider any evidence brought to his attention by scientists, insurers and consumers, and the rates he approves will fairly apportion the costs.”

It had always been understood that homeowners in areas with greater seismic risk would pay more. But the rates, by ZIP Code, approved Monday contain some striking differences.

While most of Orange County is in the lowest rating zone, other parts, such as areas around Huntington Beach, Westminster, Anaheim, Santa Ana and pockets of Newport Beach, would pay almost three times as much.

The wide difference in rates in those areas around the Newport-Inglewood fault, which runs from Newport Beach through Long Beach to north Beverly Hills, and the rest of the county “doesn’t make sense,” said Wes Bannister, owner of Bannister and Associates Insurance Agency in Huntington Beach.

“If there was a major earthquake, it’s going to affect the south as badly as it will Anaheim and Buena Park,” said Bannister, who in 1990 was a Republican candidate for California insurance commissioner.

At least one fifth of residents in Orange County would pay the same rates as most of those living in Los Angeles, which Bannister said is “unfair” considering that much of the properties in Orange County were left relatively unscathed in recent earthquakes.

“At a first-blush look, it’s totally unfair that we should pay as high as L.A.,” Bannister said. “The Newport-Inglewood fault hasn’t been active since 1933. We’ve always been very low-rated here on earthquakes.”

Much of the San Fernando Valley would pay 40% more than residents in most of the rest of Los Angeles. That is not too surprising in light of the big 1971 and 1994 quakes there.

But rates in most of the San Fernando Valley would be 2 1/2 times those in Sylmar and San Fernando, areas at the heart of the damage and casualties in the 1971 San Fernando earthquake.

Also at the much lower rate would be Palmdale, which lies astride the San Andreas fault, on which Southern California’s most powerful quakes are expected to occur.

Several wealthy Westside communities--including Brentwood, Pacific Palisades and Malibu, but not Santa Monica--would pay a rate less than half that of the Valley and only 60% of that of the rest of Los Angeles.

There are other dramatic differences elsewhere in the state. San Francisco Bay Area residents--where most of the highest rates would be applied--would pay 4 1/2 times more than Eureka residents. Eureka was placed in the lowest rating category, despite the fact that it has had many damaging earthquakes and could face a tsunami danger.

Much of the state would pay the lowest rates. This is not surprising in areas of low quake activity such as Sacramento, but also in the lowest rating zone are Humboldt County, Inyo County and Palm Springs in Riverside County, where many quakes occur.

The dollar variations would be substantial.

The owner of a $200,000 wood-frame home in Anaheim, for example, would pay a $540 a year for quake insurance if the home was built in 1979 or later; $660 if it was built between 1960 and 1978; $700 if it was built before 1960, and $960 if it was not wood-frame construction.

The same house in Fullerton or Garden Grove would have a premium of $200, $240, $260 and $360 respectively.

The quake insurance package provides coverage for the main structure, with a 15% deductible, but not for swimming pools, fences, garages or landscaping.

The CEA will also sell policies protecting part of a condo investment, mobile homes and renters, at varying rates. All the proposed rates will be available next week on the Department of Insurance’s World Wide Web site:

HTTP://www.insurance.ca.gov.

In the hours before Quackenbush announced he would review the rate structure and that he might revise it, a Wilson representative, the Consumers Union and a leading Southern California scientist all expressed doubts about the plan.

Marjorie Berte, representing Wilson at the CEA governing board meeting Monday, abstained in the vote by representatives of Quackenbush and state Treasurer Matt Fong to approve the rates.

“I think it’s appropriate that the rates be first submitted to the Proposition 103 review process, which requires an opportunity for consumer intervention and a thorough review,” Berte said Thursday.

In another action indicative of Wilson administration doubts, Berte voted no in a 2-1 decision to let Quackenbush appoint the officials who will run the CEA.

Meanwhile, Bill Ahearn of the Consumers Union said his organization was considering “a broad challenge to the rates in full evidentiary hearings.”

He also objected to a governing board statement Monday that buyers of quake insurance policies would not be permitted to pay for them on the installment plan, as is currently the case with most insurance.

Tom Henyey, a scientist who directs the Southern California Earthquake Center at USC, expressed surprise that 19 different rating bands had been approved.

Henyey said he had originally been told there would only be three basic rating bands.

John Drennan, an actuary, and Dennis Kuzak, a senior consultant to EQE International, defended the adopted rating structure Thursday, saying it took into account varying overall quake risks.

But they said it was not practical to have a different rate for each of California’s 2,100 ZIP Codes, so some “averaging” had to be done.

Also contributing to this report was Times staff writer Lily Dizon.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Quake Protection

Home earthquake insurance rates, effective Dec. 1, will vary widely in Orange County depending on the age and kind of construction. Homeowners’ ZIP Codes will determine whether the higher or lower rate structure applies. Annual rates per $1,000 of basic coverage:

*--*

Lower Higher rate rate Frame construction Built before 1960 $1.30 $3.50 1960-1978 1.20 3.30 1979 or later 1.00 2.70 Other construction* 1.80 4.80 Mobile homes 2.45 7.60

*--*

* Includes masonry

Source: California Earthquake Authority