California Drops Earthquake Insurance Rates

Most home owners don't carry earthquake insurance. Lower prices could get them to consider it.
By: Gayle Pollard-Terry: REALTOR® Magazine Online
The California Earthquake Authority, a privately funded, state-run insurance pool that provides earthquake insurance to California homeowners, has dropped its prices.

On July 1, the authority reduced rates an average of 22 percent statewide, a drop that state officials and insurers hope will attract homeowners who currently don’t have earthquake insurance.

The abstainers include 86 percent of California homeowners, who presumably don’t believe an earthquake is likely in their neighborhood or who think the government will bail them out. Ordinary homeowners insurance doesn’t cover earthquakes in California.

Rates are coming down overall because of the improving financial status of the CEA, which opened in 1996. Since then, the authority has never had to pay out on a major earthquake and has built up cash reserves.

"We opened our doors with $600 million in capital," said spokeswoman Nancy Kincaid. "We now have more than $2 billion."

To cover claims from a major quake without going broke, the authority buys reinsurance to spread its loss risk. The price has dropped on that, providing another cost savings.

Prices start at $250 per year for a small, recently built house in a part of the state where earthquakes rarely happen.