Change in Quake Outlook Could Help Lead to Lower Insurance Rates

Statements this week by leading scientists that the earthquake hazard in Southern California is less severe than they previously estimated may add to incentives for the state to lower its quake insurance rates, officials said Wednesday.

Pressure to do so had already been growing in the wake of an adverse ruling last month by an administrative law judge on the California Earthquake Authority’s model for estimating potential quake damage.

Also, two private carriers willing to undercut the state rates for quake insurance--and expand coverage--have recently entered the market.

These developments--plus the fact that it is an election year and that the man with ultimate control over the rates, Insurance Commissioner Chuck Quackenbush, is running for reelection--may add up to powerful incentives for lower premiums. Rates have generally gone up substantially since the 1994 Northridge earthquake, which preceded formation of the state authority, and coverage levels have decreased.

Although Quackenbush has said he is not inclined to accept the full ruling of Judge Andrea Biren, he has reopened the hearing record for further public comments and faces a May decision over making current interim rates permanent.

In ruling that the quake model governing the rate-making process was not in accord with the latest available scientific information, Biren did not say whether rates should change.

But most observers believe that Quackenbush, ruling just weeks before the June primary, is likely to cut rates, not raise them. A departmental lawyer said this week that the commissioner will probably make some rate changes.

On Wednesday, earthquake authority chief Greg Butler said that should Quackenbush choose to lower rates, the new premiums would go into effect within 90 days of his decision.

Butler said refunds of excess premiums paid under the interim rates by the 900,000 policyholders who have already bought state coverage would also go out within the 90-day period.

In other words, a check from Quackenbush could go to hundreds of thousands of potential voters before the November general election.

In the past, when Butler has noted that rates could go down, they did. An average 11% decrease was mandated last July in the midst of public hearings after scientists with the state Division of Mines and Geology questioned the quake model--the same one the judge later rejected--prepared for the state by EQE International, a private firm.

Both Democratic challengers of Quackenbush--Assemblywoman Diane Martinez of Monterey Park and Marin County Supervisor Hal Brown--have criticized the present rate structure.

“It was not set on a rational basis,” Martinez said. “Thank God, I didn’t vote for the earthquake authority in the first place.”

Brown said Quackenbush has had conflicting positions on rates.

“First, he approved the rates,” the candidate said. “Then he joined consumer groups to challenge the rates. Then he succeeded in getting his own rates ruled illegal. But now he’s not sure he wants to accept the victory.”

The Legislature and Gov. Pete Wilson approved creation of state-run earthquake insurance in 1996 under pressure from big insurance companies eager to reduce their exposure in the wake of $12.5 billion in damage payouts to Northridge quake victims.

Many quake scientists calculated after the Northridge temblor that there was a “quake deficit” in Southern California, with fewer large quakes occurring since 1850 than slip rates on faults would indicate should happen. So, they postulated, more frequent big quakes could take place in the future.

Tuesday, however, scientists said some quakes that occurred in the 19th century, before Southern California became heavily populated, probably had escaped notice. When 40 major quakes that took place after 1903 were added up, they said, no deficit was found.