This month's tragic twin earthquakes in Mexico apparently are escalating concern among Californians about the ability of their homes, offices and factories to withstand a similar catastrophe--one that geologists estimate is overdue.
But the biggest aftershocks of that concern may eventually come to the beleaguered property-casualty insurance industry, which after being weakened from massive losses in recent years, may not be able to accommodate an expected surge in new requests for earthquake insurance.
Some insurers say they have already stopped writing new earthquake insurance in the Los Angeles and San Francisco Bay areas because of a lack of insurance reserves.
For consumers and businesses, that already has resulted in higher premiums for some policies.
"We're getting a lot of inquiries (from consumers about coverage) and a lot of negative responses from insurance carriers," said Tom Garnett, director of consumer affairs for Santa Monica-based National Insurance Rating Service and Bancsure Insurance Services.
FOR THE RECORD
Los Angeles Times Tuesday October 1, 1985 Home Edition Business Part 4 Page 2 Column 5 Financial Desk 1 inches; 30 words Type of Material: Correction
Maximum insured losses for earthquakes with a magnitude of 8.25 on the Richter scale are estimated at $3.38 billion for San Francisco and $4.66 billion in Los Angeles. A chart in some Monday editions was incorrect.
Insurance carriers are finding, he said, that their reinsurance partners are "either increasing their rates to the point that they're astronomical or they're getting out of the business entirely."
The Mexican quakes have already triggered a surge of inquiries among homeowners and businesses about how much quake insurance they should have.
"We saw a significant increase in calls," said David Hedman, executive director of EPI-Center, a Palo Alto-based engineering firm that specializes in assessing the ability of structures to withstand earthquakes. "Anytime there's an earthquake--whether in Mexico, Coalinga or Morgan Hill--we notice a direct correlation. The calls flood in."
EPI-Center (an acronym derived from Environmental Protection and Information Center and also a play on the earthquake term epicenter ) uses a portable computer and a formula jointly developed by its engineers and Stanford University's Earthquake Engineering Center to rate the seismic survivability of buildings. The results range from 0 (total collapse) to 100 (complete survival). The assessment includes recommendations on how to reduce susceptibility to damage, Hedman said.
Such an analysis can indicate with some precision whether and how much earthquake insurance a home or business requires, according to Hedman.
The number of Californians who have insured their homes against earthquake damage has doubled this year--but so far that increase was inspired mostly by a new state law. The law, which took effect in January, requires all insurance carriers offering homeowners insurance to also make earthquake insurance available to their customers.
The law also requires them to notify their policyholders that this additional coverage is available--which most companies accomplished by mailing registered letters to their customers earlier this year.
As a result, about 12% of California's homeowners now have earthquake insurance--about double the percentage at the end of last year, according to an estimate by the California Department of Insurance. However, the department noted, many may later drop the new coverage when their policies come up for renewal.
"People will buy it for a year, won't have an earthquake and will let it lapse," predicted Jennifer Nicholson of Western Insurance Information in Santa Ana. "So while 10% to 14% now have it, we don't know how long that will last."
Premiums range from about $1.50 to $3 per $1,000 of coverage, depending on the seismic risk, she said, with a deductible of 5% or 10% of the insured building's value.
Few insurers can say yet whether the Mexican catastrophe has triggered an increase in applications for earthquake insurance beyond the influence of the state-required mass mailing to policy holders.
One that has noticed a surge is Fireman's Fund Insurance Cos. Applications have increased since the quakes, compared to the week before them, said Kevin Howard, vice president in charge of personal-lines underwriting.
"I can't say it's specifically due to the Mexican quakes, but I would attribute at least part of it to the quakes," Howard said. "Most definitely there has been increased consumer awareness and concern."
That echoes the experience of Joe Annotti of the Independent Insurance Agents of California. "Typically after a quake," Annotti said, "you experience a jump of 20 to 30% in applications received."
But the significance of the Mexican earthquakes will likely be not the number of policies written, he warned, but the number of policies not written. The Independent Insurance Agents have already had to stop writing new earthquake insurance in the Los Angeles and San Francisco Bay areas because of a lack of insurance reserves to cover it, he said.