State Gives Insurers More Time to Join Quake Authority

With some of the state’s biggest insurers slow to commit to participating in the California Earthquake Authority, the state on Friday extended the sign-up deadline to Nov. 25 amid speculation that the starting date for state quake insurance could slip past Dec. 1.

The new authority, approved by the Legislature last summer, would provide earthquake coverage to homeowners and condo owners, but often at a price more than twice as high as charged by private carriers before the 1994 Northridge quake. It would also increase deductibles and exempt many items from coverage.

There is a requirement in the law establishing the authority that companies providing at least 70% of the market in homeowners coverage must agree to join the authority and make initial contributions to it before it can begin to function.

But as of Friday, the original deadline for signing up, only a few companies had done so. Such big insurers as Farmers and State Farm have given only verbal commitments, officials said.

Some insurers were said to be waiting for a new form of participatory agreement that was approved Friday.

State officials and lobbyists said Friday that others still harbor doubts about the new agency, which would lower their exposure to earthquake losses but only at a price of advance monetary commitments and contingent liabilities in case of an early big quake that could run into the billions.

Insurers such as Safeco and CNA have said they would probably not join, as have many small insurers who plan to continue selling quake insurance on their own, perhaps undercutting the state price and avoiding paying money up front.

The result was that when the earthquake authority board met in Sacramento on Friday, it moved back the sign-up deadline by 10 days and discussed possibly letting 20th Century and the state’s FAIR plan join the authority.

This would add about 3% in market share and might push the authority over the required 70%.

But 20th Century has been under an order by Insurance Commissioner Chuck Quackenbush to stop selling homeowners insurance because of its Northridge quake losses, and he would have to lift the order before it could join the authority.

Quackenbush would also have to lift his ban on letting the FAIR plan--an offering of homeowners insurance to those who cannot obtain it in the regular markets--sell earthquake insurance.

The appointed chief executive officer of the authority, Greg Butler, said Friday he still hopes the agency can begin operating Dec. 1, as originally scheduled, but he cautioned, “A lot of factors could adversely affect that.”

Butler also told the board that original plans to sell $1.5 billion in bonds to investors to fortify the resources of the authority will not be pursued now because the agency would have to pay too much in interest.

Instead, the board voted to authorize the purchase of $1.5 billion more in reinsurance, bringing the total of reinsurance backing the authority to $2.4 billion.

Regulations issued by Quackenbush setting the premiums for the new earthquake insurance on an interim basis are being considered by the state Office of Administrative Law, which must approve them before the Earthquake Authority can function.

Consumers Union has filed a challenge to Quackenbush’s authority to set interim rates, insisting he has to hold hearings first.