California Gov. Arnold Schwarzenneger and other state officials who are part of the California Earthquake Authority are considering whether to reduce quake insurance rates in the state by 22 percent. The proposal before the Authority suggests that the reduction is warranted because earthquake hazard probabilities, along with the risk of property damage, are lower than previously thought. The cost to the authority for reinsurance also has fallen, according to the proposal.
Gov. Schwarzenneger, state Treasurer Phil Angelides and Insurance Commissioner John Garamendi are voting members of the authority. If they vote in agreement, they will forward their recommendation to the Department of Insurance for review. If approved by the department, the rating plan would make more distinctions based on when a house was built and how many stories it has. A rate decrease could take effect by 2006 if it is approved. The decrease would be the first rate cut in six years.
Sam Sorich, president of the Association of California Insurance Companies in Sacramento said his group’s main focus is to protect the financial soundess of the earthquake authority. The Association’s group actuary was examining the proposal late Wednesday.
The California Earthquake Authority is a privately funded, publicly managed organization that provides earthquake insurance for 700,000 policyholders in California. In 1998, the Authority had approximately 900,000 policyholders. And the decrease is due in part to the high cost of premiums, according to Angelides, who supports the rate reduction.
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