State Urged to Overhaul Quake Agency

In yet another move to reexamine the work of ousted Insurance Commissioner Chuck Quackenbush, Treasurer Phil Angelides urged lawmakers Thursday to overhaul the California Earthquake Authority before the next big temblor strikes the state.

Angelides, who sits on the authority’s governing board along with the governor and the insurance commissioner, warned lawmakers that the agency created to provide insurance for earthquake victims could be crippled financially if it is forced to pay a large number of claims.

“I believe that this is the year that both the governing board and the legislative leadership has to put a thorough review of the CEA at the top of the agenda,” Angelides said in an interview. “Now is the time to move forward before there is a crisis or a significant event.”

The earthquake authority was created by the Legislature in 1996 in a move engineered by former Insurance Commissioner Chuck Quackenbush and the insurance industry, which had been hit hard by claims from the 1994 Northridge earthquake. A quasi-public agency, it provides coverage to about 850,000 consumers, mostly in the Los Angeles and San Francisco Bay areas.

Angelides’ request for a revamping of the authority comes as the resignation of Quackenbush, who stepped down in disgrace in June, has left it without a strong champion.

Angelides said his concerns about the long-term financial viability of the authority stemmed from independent analyses that questioned whether it could stay in business if hit by claims from a strong earthquake like the Northridge disaster.

“After an earthquake there will be a surge of folks who want policies at the very time the entity is least able to serve them,” Angelides said.

The treasurer said he is particularly concerned that the authority relies too heavily on reinsurance, often defined as “insurance on insurance.” Reinsurance is purchased by companies and government agencies to kick in after primary insurance funds have been exhausted.

The cost of reinsurance can easily skyrocket after a natural disaster elsewhere in the country, he said, which then affects the California authority’s ability to purchase enough coverage to protect its policyholders in the event of a major quake in California.

Lawmakers, who received a letter Thursday from Angelides requesting an examination of the authority, said they had already scheduled hearings to study it.

“The reports last year suggest there are serious problems. I think it’s a critical issue,” said Senate Insurance Committee Chairwoman Jackie Speier (D-Hillsborough). “There’s plenty to look at, there’s plenty that needs to be fixed. The fact that the architect of this was Chuck Quackenbush probably says more than anything else.”

Speier’s committee has scheduled a hearing on the authority next week in Napa Valley, near the epicenter of a 5.2-magnitude quake on Sept. 3.

Representatives of consumer groups said Angelides’ letter confirmed their own concerns that the authority would not provide homeowners with the protection they need to rebuild after a quake.

“This is a great ‘I told you so’ for consumer groups,” said Amy Bach of United Policyholders. “We have been saying it’s [the authority’s] an insider’s deal for a long time.”