The CEO of the California Earthquake Authority, Glenn Pomeroy, visited the Southwest Riverside County Association of Realtors in Murrieta Feb. 7, sharing his company’s strategic plan to educate, mitigate and insure earthquake losses.
CEA is the largest provider of earthquake insurance in the United States, and Pomeroy has been its CEO since 2008. He was elected to the state Legislature of North Dakota at age 22; he served as county prosecutor, as well as state Insurance Commissioner. He was selected by his peers from around the country to serve as president of the National Association of Insurance Commissioners before going on to work in the private reinsurance industry.
“The risk is very real,” Pomeroy said. “California is home to two-thirds of the nation’s earthquake risk. There is a 99.9 percent chance of a magnitude 6.7 or larger in the next 30 years and a 93 percent chance of a magnitude 7.0 or larger in that same time period.”
A magnitude 7.0 quake would be three times stronger than the Northridge quake. “Most Californians live within 30 miles of an active fault,” Pomeroy said. “Ninety percent don’t have earthquake insurance. We need to do something about this.”
The Northridge earthquake Jan. 17, 1994, was a magnitude 6.7 and was felt as far away as Las Vegas, Nevada. The death toll was 57, with more than 8,700 injured. Property damage was up to $40 billion with $20 billion being residential damage.
“If that same earthquake were to happen today,” Pomeroy said. “Residential damage would be $75 billion; only $7 billion would be insured, leaving $68 billion in uninsured damage. That would be a financial catastrophe.”
Pomeroy went on to dispel some common myths. Many people believe the government will bail them out; assistance from the Federal Emergency Management Agency is limited and can be used only for a specific purpose. The grants range from an average of $5,000 – 6,000 to a maximum of $32,000. Emergency government loans must be repaid. Typical homeowner’s policies specifically exclude earthquake coverage.
In 1984, homeowners’ insurance providers were required by law to offer separate earthquake insurance policies. Since the devastating Northridge quake, many stopped writing homeowners’ earthquake insurance in California.
The not-for-profit CEA was formed 20 years ago by the state Legislature in the wake of the Northridge quake to meet the need. CEA is a publically-managed but privately-financed entity specifically for residential earthquake insurance. CEA currently has 931,000 policy holders.
They have claim-paying capacity of $14 billion. To put that in perspective, that is enough to cover $8.2 billion in claims for the 1906 San Francisco earthquake, $5 billion for the 1994 Northridge quake, and $900 million for the 1989 Loma Prieta quake.
In the 20 years since 1996, inflation is up 51 percent. Housing reconstruction costs are up 168 percent. By contrast CEA has lowered its earthquake insurance rates by 55 percent.
“People used to say ‘it costs too much, there’s too little coverage and the deductible is too high’,” Pomeroy said. “So we revamped the policy and the underlying value proposition.”
Comparing the 1996 policy with today’s offering, the personal property replacement was $5,000; it is now up to $200,000 with $1,500 for emergency repairs like ripping out wet carpet, with no deductible. The deductible used to be 15 percent paid by the homeowner; it is now a choice of 5 percent to 25 percent, and the homeowner is not required to pay to receive their claim payment. Loss-of-use was $1,500; it is now up to $100,000 with no deductible. There was zero mitigation discount; now there is up to a 20 percent reduction in premium.
“One of the biggest differences is now the homeowner has a choice of coverage and deductibles to fit their needs and budget,” Pomeroy said. “And there are new discounts for retrofitting older homes. Californians are responding well to these new affordable options. We added 52,000 new policy holders last year. Homeowners can use the simple calculator app (www.earthquakeauthority.com) to explore their different options.”
However, CEA does not sell the insurance directly as a stand-alone product.
“Over 75 percent of the homeowners insurance providers in the state have signed on with CEA to sell the earthquake insurance products,” Pomeroy said.