Exactly seven years ago to the day, America experienced its most costly insurance disaster as the Northridge earthquake rumbled through California, killing 60 people and destroying or damaging thousands of homes, businesses and apartment complexes.
The Personal Insurance Federation of California reports that the number of Northridge claims filed over the past seven years has topped more than 600,000, while claims payments have reached $15.3 billion. The insured losses from Northridge alone are close to four times the $3.95 billion in quake premiums collected by all California earthquake insurers from 1969 through 1994.
The quake measured 6.7 on the Richter scale and left behind a wake of destruction. A poll revealed that PIFC member companies have paid out more than $6.6 billion on Northridge claims. According to Dan Dunmoyer, president of PIFC, members of the organization have processed more than 208,000 claims and less than one-half percent remain open. Dunmoyer believes that the Northridge quake taught insurers that they had dramatically underestimated the potential damage caused by moderate earthquakes.
California law requires insurers that sell homeowners insurance to also offer earthquake coverage. Following Northridge, the California Legislature had to respond to an availability crisis as insurers either restricted the sale of new homeowners policies or stopped writing homeowners altogether. One policy change that ensures adequate coverage for consumers is the Consumers Union supported catastrophic insurance policy.
In effect since 1996, this policy covers up to $5,000 in contents, and does not include swimming pools and other items decreasing exposure to insolvency. Another change was the creation of the California Earthquake Authority. Established in Dec. 2, 1996, the CEA is a privately funded, publicly managed entity that provides earthquake coverage to residential property owners, condominium owners, mobile home owners and renters.
With more than 840,000 policies in force today, the CEA is the largest quake insurer in the world. In fact, it has the claims paying capacity to pay more than $7.5 billion in residential earthquake claims–enough to pay off more than three Northridge quakes, according to Dunmoyer. He feels that today California enjoys a financially strong homeowners and earthquake insurance marketplace due in large part to the CEA.
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