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Homeowners Insurance

August 11, 1994

Hurray for Benjamin Zycher, a lonely voice telling it like it is again in his column "Misguided Policies--Then the Earthquake," Commentary, July 27.

He is absolutely correct, tying earthquake coverage to homeowners insurance works only as long as homeowners is a profitable line of business and the earthquakes are small. However, there is much more to the availability problem in the homeowners line of business in California than just the Northridge earthquake.

The California insurance industry has not made a profit in the homeowners line since 1989. In fact, it has lost $2.4 billion for the period 1990 through 1993 after including investment income on funds attributable to insurance transactions. Also, earthquakes have been larger and more frequent than anticipated in 1984 (the year the mandatory earthquake law became effective) when most of the rates were set. Even so, companies which see an opportunity to make a reasonable profit in the future do not abandon market share because of a past loss. It is when regulators take away this opportunity that they leave the market.

It is ironic that the insurance commissioner argued before the California Supreme Court on June 7 that his rate regulations shouldn't be found confiscatory under any circumstances because if companies don't like them they are free to leave the state, and then less than three weeks later appeals to the governor and the Legislature to pass a law preventing them from doing so. A sort of economic Berlin Wall. It did not work there and it shouldn't be tried here.

In the long run only cost-based rating and the free-enterprise system of competition work best for the consumer, business and the California economy as a whole.


Century-National Insurance Co.

North Hollywood

* Zycher's column comes across as hardly an objective analysis of the insurance "mess" we have in California. He writes of Prop. 103, passed in 1988 by California voters, as part of the "perverse politicization" of the California insurance market. The fact is, Mr. Zycher, Prop. 103 has not yet been implemented, thanks to the slick insurance company lawyers and the fortuitous presence of Republican politicians (Atty. Gen. Dan Lungren and Gov. Pete Wilson's appointees) who play footsie with their well-endowed, well-positioned insurance company constituents.

Zycher, the insurance companies' champion, builds a splendid case for government-run homeowners insurance in California, insurance that would cover contingencies from natural catastrophes and disastrous liabilities of all kinds, including earthquakes. If giant, non-risk-taking and profit-driven insurance companies run for cover and refuse to write this kind of protective coverage for California citizens, it's obvious only one course of action remains. Insurance Commissioner John Garamendi, go for it.



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