Garamendi Proposes Creation of National Disaster Insurance Program

October 7, 2004

Warning that the cost of rebuilding after natural disasters is making insurance more costly and less available for many Californians, Insurance Commissioner John Garamendi outlined his ideas to back the creation of a national “natural disaster insurance program.”

Speaking to a gathering of Bay Area government officials convened to commemorate the anniversary of the Loma Prieta earthquake, the Commissioner said that recent wildfires in California and a flurry of hurricanes in Florida have made it clear that the entire country must be involved in a solution.

“Natural disasters can, and do, strike anywhere,” Commissioner Garamendi said. “It makes sense to spread the risk and share the cost of rebuilding after these devastating forces of nature.”

The Commissioner explained that currently much of the rebuilding cost is borne by taxpayers, under what he has dubbed the “Air Force One” insurance policy. “After a catastrophe the President flies in and declares a disaster,” Commissioner Garamendi explained. “Then, millions in federal dollars come pouring in to help. We, as a country, can do better.”

The Commissioner advocates the creation of an insurance policy to cover all natural disasters in the United States. The risk would be spread across a much larger pool of potential claimants, making it more affordable and cost effective. The cost of premiums would vary depending on area and structure risks.

In California, the situation is highlighted by the relatively small number of homes covered by earthquake insurance. Just 13.34 percent of all homes with residential insurance carry earthquake coverage insurance. “That means that premiums for these policyholders will be extraordinarily high because the pool of risk is so small,” Commissioner Garamendi said. “California’s propensity for disasters means that we all are at a high risk to lose our homes and other important possessions. A national policy would help spread the cost of rebuilding our lives.”

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