U.S. Sens. Dianne Feinstein and Barbara Boxer, both D-Calif., introduced legislation to lower the cost of earthquake insurance for Californians and individuals who purchase coverage from a nonprofit, state-run earthquake-insurance program.
Senate Bill 637, the Earthquake Insurance Affordability Act, would allow nonprofit insurance programs, including the California Earthquake Authority (CEA), to access federal loan guarantees for debt and more effectively and efficiently capitalize for catastrophic earthquakes. This will allow them to provide lower rates to homeowners and empower more Californians to purchase protection in anticipation of California’s next major earthquake, say supporters of the bill.
To qualify for the debt guarantee, qualified state earthquake insurance programs would have to demonstrate to the Treasury their ability to pay back any loan that they would seek a guarantee on.
The tragedy and devastation of the recent earthquake in Japan was a real wakeup call,” Sen. Feinstein said. “We cannot prevent an earthquake, but we must do everything we can to prepare for one by ensuring homeowners have access to affordable earthquake insurance coverage. This legislation will allow homeowners to get back on their feet and recover more quickly in the event of a significant earthquake.”
“I am proud to join with Senator Feinstein to introduce legislation that would help homeowners in California access affordable earthquake insurance, which is critical to helping residents and communities recover and rebuild after the devastation of an earthquake,” Sen. Boxer said.
In the first five years this legislation is in effect, nearly half a billion dollars in reinsurance costs would be saved and passed along to consumers in the form of lower rates, according to the senators. The California Earthquake Authority could cut premiums by 30 percent or deductibles by 50 percent. This could allow at least 700,000 additional California homeowners to be covered by earthquake insurance, the CEA predicts.
The cost of the loan guarantees and program administration will be borne by the participating state programs and will have no cost to federal taxpayers.
Following major disasters, the federal government spends billions of dollars in response efforts. By enacting the Act and increasing the number of individuals with insurance, the cost of disaster recovery to the federal government could be substantially lower, the senators said in a statement.
“Recent events have shown how significant the impact of an earthquake can be and how critical it is for people to be ready to confront the challenges that arise from such a disaster. And one of the most important ways people can do this is though earthquake insurance,” said California Insurance Commissioner Dave Jones. “This bill would enable state sponsored earthquake programs to lower the cost of earthquake insurance, increase the amount of coverage provided and lower deductibles at little or no cost to the federal government. In fact, as more people buy earthquake insurance, the federal government could even see a reduction in the monies it pays out in disaster assistance after an earthquake.”
FEMA cannot make payments to individuals who have insurance coverage; therefore every family that purchases earthquake insurance as a result of this bill is one less family that FEMA may have to supplement when disaster strikes, added the senators.
Currently, 12 percent of Californians carry earthquake insurance, leaving almost 9 out of 10 California homeowners and renters exposed to potentially devastating financial loss in the event of an earthquake, according to the CEA.
“As the recent large earthquakes in Japan, Haiti, Chile and New Zealand have demonstrated, it’s not a question of if there will be an earthquake in California it’s a question of when,” Jones said.
The United States Geological Survey and the California Geological Survey have predicted there is a 99.7 percent chance of a 6.7 magnitude earthquake or larger striking California in the next 30 years.