Is this the big moment?

EARTHQUAKE insurance: Most California homeowners don’t have it, but Bill Saake wouldn’t think of going without it.

After the 1994 Northridge quake damaged his Chatsworth house beyond repair, his Allstate policy paid to rebuild. But Allstate, like many other insurers, no longer offers earthquake insurance in California, so Saake pays around $1,700 a year for coverage on his four-bedroom, three-bathroom home from the California Earthquake Authority, a privately funded, state-run insurance pool.

He won’t have to pay that much when he renews his policy, however, because his earthquake insurance just got cheaper. Saake’s bill will be halved.

On July 1, the authority reduced rates an average of 22% statewide, a drop that state officials and insurers hope will get the attention of the 86% of California homeowners who do not carry earthquake insurance. They include those who balk at the high premiums and high deductibles, those who don’t believe an earthquake will rattle their neighborhood and those who believe good old Uncle Sam will come to their rescue in the event of a catastrophe.

The lowest rates -- as little as $250 a year in parts of Ventura and San Diego counties -- will go to those who own one-story, wood-frame homes built after 1991 that aren’t located near an active earthquake fault or on shaky ground. But the relief isn’t universal. Rates will increase in Riverside County, parts of Palm Springs and Palm Desert and portions of Palmdale and Lancaster, which are at a greater risk for earthquake damage.

The CEA based the new rates in part on information on all faults in the state provided by the California Geological Survey. Among factors considered, according to Michael Riechle, the chief seismologist, were the magnitude and frequency of earthquakes expected and whether a home is on hard rock or on softer alluvial material.

“We have developed a map for the state of California that shows the different geological substrates and how they might impact the amount of shaking,� he explained. In areas where rates went up, strong ground shaking could be amplified by the soil and cause more damage.

Rates are coming down overall because of the improving financial status of the CEA, which opened in 1996. Since then, the authority has never had to pay out on a major earthquake and has built up cash reserves.

“We opened our doors with $600 million in capital,� said spokeswoman Nancy Kincaid. “We now have more than $2 billion.�

To cover claims from a major quake without going broke, the authority buys reinsurance to spread its loss risk. The price has dropped on that, providing another cost savings.

The CEA was an outgrowth of the Northridge earthquake, the last major temblor in the state and the most expensive in U.S. history in terms of damage.

The 6.7-magnitude quake killed 57, injured thousands, destroyed houses, collapsed apartment buildings, crumpled businesses, wrecked freeways and ran up huge bills for insurance companies. Insurers paid out $12.5 billion, which was more than the total of all earthquake insurance premiums ever collected in California. After that loss, insurers balked at writing new earthquake policies or renewals and threatened to stop doing business in the state. In response, the Legislature created the state-run insurance pool.

Funded by premiums and contributions from member insurance companies, the CEA writes about 69% of the quake policies in California.

To get a CEA policy, you must have a homeowner’s policy with one of the 19 companies that belong to the CEA, Kincaid said. Those companies include Allstate Insurance Co., Farmers Insurance Group and State Farm Insurance. Nonauthority companies, including GeoVera Insurance Co., Firemen’s Fund and Pacific Select Property Insurance Co., issue 31% of the state’s quake policies.

The CEA’s rates are based on factors including the home’s proximity to an active fault, age of the home, number of stories, cost to rebuild and other variables such as the type of roof -- a shake roof costs more to replace than a tile roof -- and type of construction. In an earthquake, a one-story, wood-frame house holds up better than a two-story brick house.

The basic policy includes a 15% deductible based on the cost to rebuild, which is lower than the market value of the house because it doesn’t include the cost of the land. It does not cover garages, swimming pools, fences or walls but provides $5,000 for damage to personal property such as television sets and furniture. It also provides $1,500 for emergency living expenses, such as a motel room, while a damaged home is repaired.

Homeowners can buy additional coverage. They can pay more to decrease the deductible to 10% for structural damage, increase the coverage for contents up to $100,000 and raise loss-of-use protection up to $15,000. But at best, the CEA’s policies provide less coverage at higher prices compared with those written before the Northridge earthquake, prompting some consumer advocates to question the value.

It’s worth it, said Elizabeth M. Imholz, West Coast regional director of Consumers Union. “To lose family shelter and not have adequate insurance and no way to replace it is a devastating blow,� she said, pointing out that homeownership is also a chief means to build wealth.

Amy Bach, executive director of United Policy Holders, a nonprofit consumer advocacy and education group, said buying earthquake insurance is an individual financial decision.

“If you’re really prudent, buy it,� she said. If you are a big risk taker and you’re disciplined, she added, invest the money. “Make that your earthquake fund.�

Investing $960 annually for 14 years, compounded at a generous 8%, would amount to $23,246, according to the Insurance Information Institute, far less than an insurance payout.

“With the new lower rates, it’s time to go back and reconsider buying earthquake insurance because Californians are in a real precarious position without it,� said Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. Still, he is concerned about the high deductible -- $60,000, for example, on a house that would cost $400,000 to rebuild.

“What is sold today is a catastrophe policy as opposed to a make-you-whole policy,� the CEA’s Kincaid explained. Prior to Northridge, policies replaced everything, she said. “Your pool. Your mother’s china. Your crystal chandelier. Your granite countertops. Today, it’s meant to keep you from living in the Staples Center. It’s meant to get you back in your home as soon as possible.�

Still, most homeowners aren’t buying it.

Why not?

“Money. Above and beyond that, out of sight, out of mind. The longer we go between major earthquakes, the fewer people keep their earthquake insurance,� said Candysse Miller, executive director of the Southern California office of the Insurance Information network, a nonlobbying trade association representing the entire state.

She hopes the new rates will encourage homeowners to reconsider.

“You look at the cost of housing in California and how much equity we have in our homes,� she said. “In a matter of seconds, you could lose it all.�

Charles Clark learned that firsthand during the Northridge earthquake. He lost his Chatsworth home.

“Aside from being terrifying, it was financially very scary until we realized we had excellent coverage. We had full-replacement-value coverage with 20th Century, and they were good to their word on that,� he said. The policy also paid their living expenses for two years while the Clarks rented a house a block away at a cost of $3,500 per month. “Otherwise, I would have [had] to buy a trailer and live in the driveway until the new house was built.�

Does Clark have earthquake insurance today?

“You betcha. I wouldn’t take a chance on that,� he said. Although his old insurer, now called 21st Century, no longer writes earthquake insurance, he bought extensive coverage from GeoVera Insurance and pays $1,113 a year. Saake, his neighbor, has been paying more for less coverage.

Clark’s rebuilt home has safeguards, such as 30-foot-deep caissons, which shore up the foundation. Those improvements have reduced his quake insurance bill.

Another survivor of the Northridge quake, Barbara Shugar, had major structural damage and asbestos exposure at her Woodland Hills home. When 20th Century refused her claim, she sued and eventually settled out of court.

That experience, however, did not sour her on earthquake insurance. “We have to have it out here,� she said.

Unlike Shugar, many noninsured homeowners bet the government will come to the rescue in the event of the Big One.

“There’s also a perception that if a disaster is bad enough, the federal government is going to come in and bail people out,� said Michael Paiva, senior legislative advocate for the Personal Insurance Federation, an industry trade group. “Our advice to people is, you can’t count on that.�

After the Northridge earthquake, the Federal Emergency Management Agency paid out nearly $10 million in federal assistance. Today, FEMA’s maximum grant is $27,200 for minor home repair, transportation, temporary housing or funeral expenses, according to James Schebl, an agency spokesman based in Oakland. And, after federally declared disasters, the U.S. Small Business Administration offers long-term, low-interest loans of up to $250,000 for homeowners, with up to 30 years to repay.

That type of assistance helped Yvonne Jones after the Northridge earthquake caused $30,000 in damage to the roof, pool and driveway of her 3,400-square-foot ranch house in Athens on the Hill, a neighborhood in South Los Angeles.

Although Jones had earthquake insurance, her deductible was $30,000, so she called FEMA. The U.S. Small Business Administration gave her a disaster loan at 3% interest.

She does not have earthquake insurance today because of the high premiums.

As for complaints about the high deductible, Paiva, of the Personal Insurance Federation, said, “Would you rather be compensated for 85% of the value to rebuild your house or zero? It still provides an enormous benefit to the homeowner.�

In the event of a claim, the homeowner pays nothing out of pocket. The amount of the deductible is subtracted from the cost to repair or rebuild the home, and a check is cut for the remainder.

Although the lower rates may persuade some to add earthquake coverage, others will take it no matter the cost. Dawn Sutherland moved to Southern California several months after the Northridge temblor and has always carried a quake policy on her Baldwin Hills home.

Sutherland will save hundreds when she renews. In her neighborhood, the average annual premium will drop from $960 to $652.

“It gives me peace of mind,� she said. “I sleep better knowing I have it.�

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(BEGIN TEXT OF INFOBOX)

Who’s paying more, who’s paying less

Here is a sampling of premium changes that took effect Saturday for basic earthquake coverage on a hypothetical one-story, 2,000-square-foot, wood-frame home built between 1980 and 1989 that would cost $400,000 to rebuild.

*--* City/ZIP Old premium new premium Beverly Hills / 90210 $960 652 Brentwood / 90049 940 584 Hollywood / 90028 960 652 Lancaster / 93534 900 976 Northridge / 91325 1,500 936 Palmdale / 93552 800 976 Palm Springs / 92262 700 804 Riverside / 92506 620 804 Whittier / 90601 960 652 Woodland Hills / 91367 1,700 936

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To calculate your premium, go to www.earthquakeauthority.com, click on Estimated Premium Calculator and follow the prompts. For more information, call (877) 797-4300.

Source: California Earthquake Authority