Rushing to Judgment on Earthquake Insurance : Sacramento is being unwisely hasty on a far-reaching issue

Is Sacramento trying to pull a fast one concerning earthquake insurance for California homeowners? Acting with unusual speed and focus, the Senate and Assembly each are fast-tracking bills to create a controversial $10.5-billion state-run earthquake insurance program. The proposals to create the California Earthquake Authority are complex and raise plenty of questions.

The availability of earthquake and homeowners insurance is a problem. Since the Northridge earthquake two years ago resulted in insured residential losses of $8.4 billion, insurers that provided 95% of homeowner insurance policies in the state have stopped selling new policies. That’s because the state requires insurers to offer quake insurance with any homeowner insurance policy--and the potential quake losses are too steep, they say.

To mitigate the problem, the Legislature last year allowed insurance companies to offer minimum, no-frills earthquake policies to reduce their risk. The Legislature also authorized the state insurance commissioner to explore creating a state-run earthquake insurance program.

The California Earthquake Authority would be a new state agency that would take over the earthquake insurance business. Private insurers would put up the money to fund the CEA, and other private investors would invest in it. The authority would sell a basic no-frills earthquake policy like the one private insurers sell now, but, consumer groups warn, the CEA policy would cost more.

Now there is a big rush on to make the CEA happen fast. In a mere two days, enabling legislation, sponsored by Sen. Charles Calderon (D-Montebello), passed through both the Senate’s Insurance and Judiciary committees. It could be before the Senate Appropriations Committee as soon as today. Last Thursday the Assembly Insurance Committee held a hearing and gutted an unrelated bill on workers’ compensation and dropped in 25 pages of amendments to create the CEA.

The Senate and Assembly bills are variations of Insurance Commissioner Chuck Quackenbush’s proposal. He wants to ram it through the Legislature by March 31, the expiration date for $2 billion in commitments from investors--money needed to fund the CEA. That deadline alone should not be the defining element in a major policy change that will affect millions of California homeowners.

Sacramento appears more interested in beating the clock than carefully weighing the interests of consumers. Certainly homeowners want and need affordable quake insurance, but the Legislature has to make sure that it is thinking this important reform all the way through.