- Some Californians who buy earthquake insurance are suffering severe price rises.
- This is explained by the fact that the new earthquake coverage rates include the most recent state forecasts indicating the areas most affected by the earthquakes and their magnitude.
- While earthquake insurance premiums will drop slightly for most Californians, 250,000 unlucky policyholders, many in Southern California, could see their rates double or triple.
A quarter of the 1 million Californians who have taken out earthquake insurance to protect their home will have a bad surprise in the coming months: their insurance premiums could double, triple or even more.
The pain in their pockets does not come from the twin earthquakes that rocked Ridgecrest, California on July 4 and 5. These earthquakes – respectively magnitude 6.4 and 7.1 – caused serious damage, but no deaths, injuries or deaths are estimated. less than $ 1 billion.
Instead, the culprit is the latest scientific evidence of where powerful earthquakes may occur in the Golden State.
A long-term study known as the California Uniform Seismic Prediction (UCERF3) has disturbing news for residents in some areas of Southern California in particular. According to UCERF3, northern California is less likely to see the "Big One" than is southern California, and the danger is specifically cited in the Los Angeles area.
Insurance premiums are changing to reflect the changing seismic risks around the state. Sacramento area homeowners currently pay only $ 300 a year, while those in parts of Los Angeles receive an annual bonus of $ 2,000. This premium could increase even further next year as the new rates come into effect.
"We expect substantial increases in the eastern parts of Monterey County and west of Fresno, Kings and Kern counties, while the counties of Del Norte and Humboldt will also experience significant increases," he said. said Glenn, managing director of California Pomeroy.
The CEA is a non-profit organization that offers California homeowners insurance against earthquakes. It is a privately funded but publicly managed organization that insures more than one million households in the state, or about 10% of homeowners in California.
Giant neighborhoods in Los Angeles County, where premiums are already high, are not expected to increase due to recent geological research, Pomeroy said. The earthquake insurance can however cost more to individual homes because of factors such as heavy roofs, which make them more vulnerable to falling, he said.
Pomeroy said that other areas of the state, including counties of San Diego and Orange and East San Francisco, will experience premium reductions. In the case of eastern San Francisco, insurance costs will fall slightly, as the UCERF3 model predicts that the probability of strong earthquakes is lower in northern California, where tectonic plates have already adjusted.
Increasing risks of "big events"
UCERF3 The model predicts that the probability of moderate earthquakes (magnitude 6.5 to 7.5) such as Ridgecrest is lower "but that of larger events is higher" – rising from a probability from 4.7% in a previous forecast to almost 7% in this one. "Recent events demonstrate that earthquakes can break beyond the fault limits already understood," he said, adding that the probability of an earthquake of magnitude 8 or greater is expected to increase over the past 30 years. coming years.
UCERF3 is the third version of this study by the Southern California Earthquake Center. It was published in 2014. But its results are only now "integrated into the rates" of the earthquake insurance from July, according to Pomeroy, highlighting the complex and sometimes slow demands of geological science and insurance risk management models.
The new rates will have a minimal effect on most Californians: about 75% of insureds in this state will see their premiums fall slightly, said Pomeroy.
Currently, the "average" premium in California is about $ 800 a year for a single home policy with a replacement value of $ 400,000. But the actual cost depends on the franchise accepted by the homeowner and what is sought in additional protections, such as covering "living expenses" when repairing a home.
In response to a complaint filed by a California owner with CBS News that his earthquake insurance premiums had increased by more than 60%, and following warnings from staff at the CBS News. ACE according to which future rates could exceed 200% to 300% or more, Pomeroy responded to CBS News, "Unfortunately that's true."
"Do not kill the messenger," he says. "We must react to science."
Earthquake-related policies began in California after the Northridge earthquake in 1994, killing 57 people, injuring nearly 9,000 and causing $ 20 billion worth of damage. Most California real estate insurers have threatened to leave the state and have stopped offering earthquake fonts as part of their coverage. In response, two years later, the state legislature created the CEA, which now has a reserve of 17 billion dollars in case of earthquake. It handles most of the earthquake coverage in the state, which is separate from homeowners insurance for many years.
1 billion dollar betting cover
ECA bought $ 778 million in premiums last year and spent $ 367 million, almost half of these premiums, on reinsurance to protect its policyholders from the possibility of a magnitude 8 earthquake in a populated area. This reinsurance of major European insurers protects the CEA against the possibility of bankruptcy, according to Pomeroy.
But the movement of money has its critics. Bob Hunter, director of insurance for the Consumer Federation of America, suggested that the CEA could instead cut its premiums to persuade more Californians to subscribe to earthquake protection.
Pomeroy said that ECA needed the reinsurance agreement to cover its own financial risks: "Unlike federal flood insurance, the federal government does not have a backup base" , he explained. "And the probability of another earthquake is very high."
The cost of insurance can help prevent 90% of California homeowners from taking out earthquake protection (the ECA insurance cost calculator is available here), but the same goes for for the forgetfulness. "We lost sight of the earthquakes because we had not had them for 25 years," Pomery said after the July 4 Ridgecrest earthquake.
Pomeroy said that homeowners who can prove that they have refitted their home to protect themselves against earthquakes could benefit from a 25% discount on rates. The agency's board of directors also meets Monday to decide to offer policyholders a $ 3,000 grant to renovate their home.
The unanswered question is whether more Californians will now sign up for coverage, especially among Southern Californians in areas where rates are rising.