Agency Moves to Offer Expanded Quake Coverage

The state agency that offers the bulk of California earthquake insurance policies took a major step Thursday toward making the coverage more attractive to consumers.

The California Earthquake Authority tentatively approved a plan that would allow homeowners to choose a 10% deductible or contents coverage of up to $100,000 by paying an additional premium. Expanded coverage would be available by spring 1999 if the board approves the details of the plan at its November meeting.

CEA policies now have a 15% deductible, cover only homes and attached structures and limit contents coverage to $5,000 and living expenses to $1,500. In approving the preliminary plan, the board admitted that private insurers have largely failed to meet the demand for more than the bare-bones coverage offered by the CEA’s state-run pool. Insurers’ promises of expanded coverage helped lead to the Legislature’s creation of the CEA, after insurers refused to write additional earthquake insurance in the wake of the 1994 Northridge temblor.

“Basically what we have now is after almost two full years since the onset of CEA, only three companies” offering supplemental policies, said David Knowles, board chairman and deputy commissioner for the Department of Insurance.

“We’ve had zero [new] applications, despite repeated calls to the private market of ‘Doesn’t anybody want to do this?’ ” Knowles said.

He said the plan could be derailed if private insurers suddenly rushed into the market. But he said chances of that are slim.

Of the three insurers, only Pacific Select writes supplemental policies for the general public; USAA and Armed Forces sell only to current and retired military personnel. Pacific Select has written just 6,000 policies so far, compared with nearly 1 million written by the CEA. GeoVera, another earthquake insurance company, writes only stand-alone earthquake policies.

“We could not begin to place all the policies” with those private insurers, Knowles said. “It would sink their boat.”

Consumer advocates said the expanded coverage would help some homeowners but failed to address the larger problem of affordability.

“The rates are still way too excessive,” said Philip Roberto, research director for Santa Monica-based Proposition 103 Enforcement Project. “They’re at least 30% too expensive.”

The CEA’s policies typically provide far less coverage than earthquake policies available before Northridge. Pre-Northridge policies offered deductibles of between 5% and 10%, contents coverage equal to between 50% and 100% of the home’s insured value, and living expenses of $50,000 or more.

Under the new CEA proposal, consumers could opt for a 10% deductible by paying an average of $143 a year in addition to their regular earthquake premium. Alternatively, policyholders could opt for increased contents and living expense coverage. A contents coverage limit of $25,000 with $10,000 in living expense coverage would cost an average of $76 more, while $100,000 in contents coverage and $15,000 for living expenses would cost $111 more.

Pacific Select said it will not fight the CEA’s proposed expansion, even though the new policies would compete directly with those offered by the Walnut Creek company.