On shaky ground

More than 300 earthquake faults crisscross the fractured crust of Southern California, some 100 of those in the Los Angeles Basin alone. And with the recent study of the Puente Hills fault, a 25-mile fissure capable of producing a massive 7.5 quake, homeowners here have yet another reason to lose sleep.

Yet, despite the fact that even a moderate temblor can result in thousands of dollars of household repairs, an increasing number of homeowners are forgoing earthquake insurance.

The number of state homeowners who have quake coverage has plummeted from roughly 30% since 1996, the year the Legislature created a government agency to issue earthquake policies, according to the California Department of Insurance. Only 15% of California homeowners today carry the insurance.

Consumer groups believe current earthquake policies, with their high deductibles, limited coverage for household contents and lack of coverage for detached garages, swimming pools and other peripheral structures, offer little value to homeowners.

State and insurance industry officials argue that other factors, including a soft economy and rapidly fading memories of recent quakes, make earthquake insurance less appealing to consumers.

Even homeowners who have endured major quakes question the value of coverage.

Artist Michele Weston Relkin was asleep in her Thousand Oaks home at 4:31 the morning of Jan. 17, 1994, when the Northridge earthquake hit.

Suddenly, “we were getting pulled back and forth like a washing machine, left, right, left right,” Relkin recalled. “And then the windows blew out and the fireplace fell into the living room.”

Relkin’s house was salvageable, but repairs would cost more than $120,000. The artist, known for her 1993 portrait of President Clinton’s family cat Socks, didn’t have earthquake insurance.

“At the time my husband said, ‘You know, if the Big One hits, it’ll be so big we won’t need insurance,’ ” said Relkin, who was able to rebuild her home with the help of a low-interest disaster loan from the federal government’s Small Business Administration.

Does the Relkin family now have an earthquake policy? “After all that, my husband doesn’t want it,” she said. “And I’ve heard it doesn’t offer much for the money.”

Roughly two-thirds of the state’s 1.15-million residential earthquake insurance policies are issued by the California Earthquake Authority, or CEA, a public-private hybrid carrier created by the state Legislature following the magnitude 6.7 Northridge quake that caused more than $40 billion in damage.

From 1994 to ‘95, major insurers such as Allstate, Farmers Insurance Group and State Farm threatened to abandon the California homeowners insurance market after paying out at least $12.5 billion in claims.

According to UC Berkeley professor Mary Comerio, the primary author of a 1996 report entitled “Residential Earthquake Recovery,” some 333,000 people received payments from private insurers following the Northridge quake. The average homeowner payout was about $30,000.

But many San Fernando Valley homeowners such as Sara Bacon believe their insurers deliberately low-balled repair estimates. Bacon, for instance, sued her insurance company and eventually received a much higher payout, which she can’t disclose under the terms of her settlement. The legal process, however, took two years. “It seemed like forever,” she said.

“The insurance industry realized that, after paying out this enormous amount, they would be bankrupt in another Northridge,” said Jerry Davies, spokesman for the Personal Insurance Federation, which represents State Farm and Farmers insurance in the CEA.

The Legislature responded by creating the CEA, which since 1996 has offered California homeowners earthquake coverage through its 18 member carriers and has collected more than $7 billion to pay claims. CEA spokesman Stan Devereux said the amount is enough, because of current high deductibles, to cover two Northridge-size quakes.

Critics, however, say the CEA policy is too expensive and doesn’t provide adequate protection. “You pay a lot of money for not a lot of coverage,” said Amy Bach, executive director of United Policy Holders, a nonprofit consumer organization in San Francisco.

“It’s an expensive product that doesn’t provide particularly useful coverage, except when your house is leveled,” said Doug Heller, senior consumer advocate for the Foundation for Taxpayer and Consumer Rights in Santa Monica. “For consumers who don’t have much equity in their homes, CEA insurance doesn’t offer anything.”

CEA officials agree their policy doesn’t protect homeowners from minor or even moderate damage. But then, it’s not supposed to. Insurance executives point out that earthquake coverage isn’t designed to protect every crystal vase and beveled mirror in your home but rather to restore the four walls and ceiling following a catastrophic temblor.

The cost of earthquake insurance varies widely. The CEA has 19 “rating territories” in California, and premiums are based on the age and type of the house (for example, framed construction or mobile), quality of the soil and proximity to a fault.

The basic CEA policy has a steep 15% deductible, which means the homeowner must pay the first 15% of the value of the home, not the value of the damage.

Homeowners just a few miles apart might pay dramatically different rates. For instance, a Reseda homeowner with a $400,000 house built before 1979 would pay $2,180 annually for a CEA policy with a 15% deductible, according to a premium calculator on the CEA Web site at www.earthquakeauthority.com. A Topanga Canyon homeowner with a similar home would pay just $1,200.

The average earthquake insurance premium statewide is just under $500, according to Devereux. A typical annual earthquake premium costs roughly one-third of a homeowner’s insurance premium, Bach said.

An earthquake policy should offer more for the money, critics claim. For instance, if the Reseda homeowner paying $2,180 annually for quake coverage suffers $100,000 in structural damage, he or she would receive only $40,000 to cover repair costs. Because the home is worth $400,000, the first $60,000 in damage -- or 15% of the home’s value --would not be covered by the CEA policy.

Furthermore, that $2,180 policy doesn’t cover detached garages, walls, fences, swimming pools or other structures that aren’t part of the main building. It provides only $5,000 to replace personal possessions damaged during a quake and a scant $1,500 in “loss of use” expenses to pay for an apartment or hotel while the home is being repaired.

“Fifteen hundred for temporary living expenses is ridiculous,” said Northridge resident Bacon.

Homeowners can lower their deductible to 10% and boost the amount of personal property and loss-of-use coverage. Those changes, however, come with a price. Upgrading to a 10% deductible, $25,000 in personal property and $10,000 in loss-of-use boosts the annual premium on the same Reseda home to $3,300, an increase of $1,120.

The CEA does offer a 5% discount to policyholders with homes built before 1979 who make earthquake-related improvements, such as bolting the house to the foundation, bracing support walls under the house and securing the water heater with metal straps. The reduction is automatically calculated into the premiums of homes built after 1979, all of which adhere to stricter building codes.

While the CEA has about 750,000 residential policies in California, private insurers write 400,000 others, according to Devereux. One of the largest non-CEA providers is Novato-based Fireman’s Fund Insurance, which has 3% of the homeowners insurance market in the state, according to company spokesman John Kozero.

Why doesn’t Fireman’s Fund join the CEA? “We have a relatively small homeowner’s business in this state, and we can manage our own risk,” Kozero said. “We don’t have the same type of pressures that maybe State Farm or Allstate would.”

According to Kozero, there isn’t much disparity between a Fireman’s Fund and a CEA earthquake policy. However, private carriers can avoid specific areas where the earthquake risk is too high, while the CEA is required by law to offer insurance to everyone. In some areas of California, “if we didn’t have the CEA, there wouldn’t be any earthquake insurance at all, period,” said Dick McCarthy, executive director of the California Seismic Safety Commission.

Because only about 15% of California homeowners have earthquake policies (lenders don’t require it), many may be betting they’ll avoid a major quake or that the federal government will bail them out.

But Uncle Sam’s bailouts aren’t generous. According to Jeff Lusk, regional earthquake specialist for the Federal Emergency Management Agency in Oakland, federal disaster grants are usually limited to less than $15,000.

“Insurance is by far the best way to protect yourself from natural disasters,” Lusk said. “That’s not an endorsement of the CEA, but in terms of recovering dollars lost, insurance is your first line of defense.”

What about a low-interest federal loan, the type Relkin used to rebuild her Thousand Oaks home? The maximum loan available for “real estate repair or replacement” from the Small Business Administration is only $200,000, according to SBA spokesman Ken Shuman. And that isn’t nearly enough to rebuild a basic tract home in Southern California, where construction costs range from $175 to $200 per square foot, according to Northridge construction and insurance consultant Carl Schiff. Based on these estimates, a quake-leveled 2,000-square-foot home would cost roughly $350,000 to $400,000 to rebuild.

The question of whether to buy earthquake insurance depends on how comfortable you are with risk. “Seventy percent of Californians live within 30 miles of a fault,” said CEA’s Devereux. “After an earthquake, if your home is destroyed, you’ll wish you had bought the coverage.”

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(BEGIN TEXT OF INFOBOX)

Weighing quake-coverage options

Homeowners looking at California Earthquake Authority insurance should consider these factors:

If you buy it ...

* coverage does not include detached garages, swimming pools or peripheral structures.

* coverage is limited for household contents.

* because of 10% or 15% deductibles, minor and even some moderate damage may not be covered.

* cost averages roughly one-third of the homeowner insurance premium but can be far greater in quake-prone areas.

If you don’t ...

* private insurers may offer lower deductibles but higher premiums.

* federal disaster grants are usually limited to $15,000.

* the maximum loan available for real estate repair or replacement from the Small Business Administration is $200,000.

Jeff Bertolucci can be reached at jbert@aol.com.