State Earthquake Policy Sales Slower Than Expected

Early sales of the new state homeowners earthquake policies are below expectations, based on results at two major insurance carriers, but state officials on Friday held out hope that sales may yet pick up as the busy summer season gets underway.

In most cases, the new state policies are more expensive than the old private policies and offer less coverage. The state policies are not being offered on an installment plan, in the initial stages, although the California Earthquake Authority intends to introduce installment purchases in June.

The two major insurance carriers that were the first to begin selling the new state policies reported that in February their sales were below what state officials had projected.

The figures from Allstate and the Farmers group of companies indicate that under the California Earthquake Authority, a smaller percentage of the state’s homeowners will be carrying earthquake insurance than the 30% who carried it before the earthquake authority was created.

Greg Butler, chief executive of the earthquake authority, said the authority’s original projections were based on an steady number of sales month by month, as the annual renewal process in homeowners insurance went forward.

But since then, he said, insurers have told the authority that sales are often higher in the summer months, because many customers buy their policies when they purchase their homes and more homes are sold in the summer.

Butler asserted that it will not be until an annual cycle is complete under the more advantageous installment plan system that a full picture of sales patterns will emerge.

But that will be a year and a half into the life of the state insurance system, and, so far, most of the first figures received indicate a small falloff in sales, he acknowledged.

For February, Allstate reported that of 86,900 homeowners sold policies, 24,121, or about 28%, bought earthquake coverage.

Farmers said that through Feb. 28, of 100,990 homeowners sold policies, only 17,004 bought quake coverage, a rate of only 17%. But a company spokeswoman cautioned that only paid policies were counted and there could be several thousand more in the payment pipeline.

State Farm, California’s largest seller, began peddling the state policies on March 15, so no statistics are yet available from that company.

The California Earthquake Authority began selling its bare-bones coverage through participating private insurance firms Dec. 1. The state authority was formed after private insurers demanded a rollback in their liability for earthquake damages when, in the aftermath of the 1994 Northridge earthquake, they paid out far more than all the premiums they had ever collected for quake insurance.

Insurers selling 71.6% of the total quake insurance market have decided to participate in the authority, and the rest will be obligated to continue offering earthquake insurance along with homeowners policies.

Under the plan, the private sellers collect premiums and adjust claims for the authority. The price structure for the state policies does not vary by company but can vary sharply for consumers across the state, depending on calculations of quake risk, age and type of home.

There are 19 different rating bands, with homeowners in some parts of the state, such as the Bay Area and part of Ventura County, paying quite a bit more than those in others.

No regional sales breakdowns were provided by Allstate and Farmers. Because in many cases several different rates apply within the same county, Farmers spokeswoman Diane Tasaka cautioned that before any comparative regional sales figures are provided, a careful look must be taken to be sure the patterns are properly conveyed.

Under the current sales system, companies that have decided to sell the state policies inform their customers as their annual renewals come due that their old quake policy is being terminated and that they have the option to renew their coverage with the state.