Question: In a recent column about earthquake insurance, you mentioned a company that offered earthquake insurance in the amount of $100,000 protection for $125. I have been carrying $75,000 worth of earthquake insurance on our house. The company recently wrote that they would no longer carry this kind of insurance but gave me no reason for stopping.
Would you kindly tell us the name of the insurance company so we can contact them between now and the end of July, when our present policy on earthquake protection expires, or else refer us to some reliable insurance company that does handle this type of insurance and that doesn't charge an arm and a leg for coverage? It strikes me that earthquake insurance must be a whole lot like automobile and homeowner insurance in that the premiums vary a lot--from neighborhood to neighborhood even--and are pretty hard to compare.--R.D.
Answer: It's quite true that our earlier discussion of earthquakes here dealt primarily with the physical phenomenon itself: what sort of structures fared better than others in the 1983 Coalinga quake; why pinpointing quake zones is such an inexact science, and, in general terms, whether earthquake insurance is warranted. Only one fleeting mention was made of earthquake-insurance premiums, and that was a "for instance," generic reference thrown in by the source I was quoting--as a sort of ballpark figure that didn't really refer to any specific company's premium.
Ironically, perhaps, according to Tom Garnett, director of consumer affairs for Santa Monica-based National Insurance Rating Service (NIRS) and Bancsure Insurance Services, earthquake-insurance coverage is one of the few areas of the casualty-insurance business in which the premiums are fairly standardized. (And "casualty" is a broad, broad field that takes in virtually everything--auto, homeowner, you name it--except life insurance.)
Highest Premium Found
"The norm is about $2 per $1,000 per year, or about $200 for a $100,000 home," Garnett adds, "and that's for the 5% deductible, which, incidentally, is a deductible on top of the standard homeowner-policy deductible of about $250. The highest premium we found for earthquake, 5%-deductible coverage was $2.15 per $1,000 being written by one company."
This, of course, raises the interesting question of where my source got that $125-for-a-$100,000-home figure used in the earlier column. It could have referred to earthquake insurance with a 10% deductible (instead of 5%), which, Garnett says, normally carries a premium of $1.50 per $1,000. And the premium can be further trimmed slightly if the homeowner has the same insurance company handling his earthquake coverage, homeowner coverage and automobile insurance.
But, as you say, it is in the automobile and standard homeowner-insurance business that premiums range all over the countryside and are virtually impossible for the average consumer to compare intelligently. And so, for most of us, buying such insurance is strictly an "eeny-meeny-miny-mo" proposition in which we don't have the foggiest idea of whether we're paying a "fair" premium.
In one Federal Trade Commission study of casualty-insurance rates, for instance, it was found that fewer than half of all buyers of casualty insurance make any attempt at all to compare costs--even though, the same study showed, auto premiums for two drivers with identical driving records can vary by as much as 300%, and two homeowners with identical houses and coverage can be as much as 100% apart in their homeowner-insurance premiums.
Ignorance on Rates
It was the existence of this black hole of ignorance about comparing rates and coverage, Garnett says, that four years ago led Al Rice and Neil McAuliffe to plow $5 million into the highly sophisticated, computerized National Insurance Rating Service and the independent agency servicing it, Bancsure Insurance Services. Rice is former president and chief executive officer of Imperial Bank and vice chairman of Bank of America, and McAuliffe is a insurance executive of long standing.
"In time, of course, we're going to go national with this service," Garnett says. "But initially, it's available without cost to anyone in California."
And "this service" to which Garnett refers permits anyone interested in shopping for the best insurance premium--for homeowner, auto, fire, theft, flood, earthquake or property--to call NIRS at (800) 824-6205; the local number is (213) 207-7100. Any one of about a dozen agents on duty will feed the sort of coverage desired into the firm's computer and, in a matter of minutes, will emerge with the name of the insurance company providing the best premium.