For the first time since the state earthquake insurance agency began selling policies 15 months ago, it is facing competition from private companies willing to sell at lower prices and to offer fuller coverage.
Two new companies--Pacific Select and GeoVera--have gone into business as state-regulated carriers and both are offering 10% deductibles to some customers rather than the 15% offered by the California Earthquake Authority.
Both companies say that in many cases they will sell much more coverage for household contents and for extra living expenses in the wake of a quake than the state agency, which offers $5,000 and $1,500 respectively.
Pacific Select is making its sales in affiliation with the state's largest independent agents association, the Insurance Brokers and Agents of the West.
GeoVera, a wholly owned subsidiary of USF&G; Insurance, is selling through a number of mortgage lenders and has a toll-free phone line for direct sales.
Although the companies are headquartered in the San Francisco Bay Area, executives of both indicate that they are more eager to sell in Southern California, which scientists say is a less quake-prone area.
However, at this time, neither of the new companies has the apparent capacity to sell very many policies statewide.
Rich Campagna, president of Pacific Select, said its goal is to sell 10,000 to 15,000 policies in the first year of operation.
Executives of GeoVera said they have sold 30,000 policies, and for proprietary reasons they refused to say how many more they intend to sell, although it will be at least 10,000.
From these figures, it appears that the number of policies available from the new companies will, initially at least, be only a small fraction of the estimated 1 million policies sold by the California Earthquake Authority or of the 2.2 million California home and condo owners who bought quake insurance in the past.
The Earthquake Authority, established by the state Legislature in 1996 to relieve major private companies of their exposure to earthquake losses, is obligated to sell to all customers of home insurance sellers, such as State Farm, Allstate and Farmers, which have entered into formal arrangements to sell quake coverage through the state. Those companies represent 71% of the homeowners market.
But Pacific Select and GeoVera are free to choose their customers, and executives of both firms indicated that they will tend to take less risky clients, or at least restrict the types of coverages for the riskier customers.
For instance, Campagna said, Pacific Select will not be willing to sell to owners of brick masonry houses or of houses built before 1955 that have not been bolted, or of houses on steep slopes.
Kevin Nish of GeoVera said: "We have a clear desire to write policies, and even a clearer desire to write them south of the Tehachapis."
Nish added that in certain localities, GeoVera will be unwilling to sell higher contents coverage, or a policy at a 10% deductible.
In those cases, the policies offered will be at a 15% deductible and at the same coverage levels offered by the state, although such policies may be priced lower than the state offers.
One San Fernando Valley homeowner received an offer from GeoVera recently that sharply undercut the state price for his residence. The state policy, with its restrictive coverages, would have cost the homeowner $801 a year, but the GeoVera policy, with a lower deductible and thousands of dollars more in coverage, would be $646.
GeoVera executives, however, cautioned that prices, which they will calculate according to specific addresses, vary widely through the state.
Customers of private insurance companies are free to try to obtain quake policies on their own from the new companies. In Pacific Select's case, homeowners may be able to obtain supplementary coverage to fill the gaps in their state policies, such as to lower their deductibles.
Even with the restrictions on selling by the new companies, this marks the first time since the Legislature approved a drastic cutback on quake coverage in 1995 that Californians are being offered more generous alternatives than the "mini-policy" approved then by the state.
It means that four years after the Northridge quake, the private market in quake insurance is beginning to revive, and now that these two companies have entered the field, others may soon follow.
State Insurance Commissioner Chuck Quackenbush has warned of a danger that the private sector could grab off all the good risks, in low quake-prone areas or sturdily built houses, leaving the Earthquake Authority with just the costly bad risks.
But Greg Butler, chief of the Earthquake Authority, said that for now he is not overly concerned because the new companies are not offering enough policies to substantially affect the market.