The first precipitator of the insurance panic for many people was the announcement last June by 20th Century Insurance Co., based in Woodland Hills, that it was dropping its homeowners and earthquake coverage and that it would not renew policies that expired after July 23, 1994.
The company's estimates for losses had reached $900 million and, although it had been one of the 10 most profitable insurance carriers in the state, it nearly became insolvent after the quake.
The insurance industry says 20th Century's pullout was the final straw in a long build up of doom for insurers. A string of national disasters of near-Biblical proportions, they say, has the insurance industry in a fix.
"It started long before the Northridge earthquake," said Candysee Miller, spokesperson for California's Department of Insurance. "From Hurricane Andrew in Florida to the Loma Prieta quake in 1989, to Hurricane Iniki in Hawaii, the flooding in the Midwest, then the Northridge quake. Things have really been compounding on the insurance industry."
"The Northridge quake made it apparent how large the losses could be from an earthquake," said Mary Crystal, regional manager of the Western Insurance Information Service, a nonprofit trade association representing 28 major insurance carriers. "We had never before had an event that could demonstrate such a potential for losses. The companies realized that to meet the demand for payment in the event of an even more significant quake, they had to reconsider the amount of business they had," Crystal said.
While some companies are cutting back on the amount of new business they write, however, others are riding the boom of the insurance squeeze.
Independent brokers, who work with smaller insurance companies and can still secure insurance for those desperate to close an escrow, have come out on top in the past year.
John Hutchins, sales manager of the Annex Insurance Brokerage Inc. in West Covina, is an independent agent whose business has gone through the roof since the insurance market tightened up. His agency has become the last resort for realtors in the San Gabriel Valley and his business has picked up 300% to 400% in the past year.
"We started out as an auto insurance agency, but six or eight months ago we picked up homeowners and now we're writing these policies as fast as we can do it. They're more expensive and less comprehensive, but hey, I can get you a quote in a few minutes. That's the reality," Hutchins said.
He deals with half a dozen small companies that continue to sell homeowners insurance. But just how long they will keep on selling is questionable, Hutchins said.
"Some of the smaller carriers are poised to pull out now," he said. "They wanted to do $1 million a month in business, but they're doing $1 million a week and they don't want that."
The insurance situation has also meant more business for the FAIR (Fair Access to Insurance Requirements) Plan, a private syndicated fire insurance pool based in Los Angeles that started out as the insurer of last resort for those in urban areas or in fire-prone hillside areas who could not get coverage.
Mike Harris, public affairs manager for the FAIR Plan, said the agency, set up in 1968 to provide basic fire insurance to urban residents after the Watts Riots, is doing 300% over normal business.
"We are getting well over 600 submissions a day, just for residential properties," he said.
For buyers who need homeowners insurance, however, the FAIR Plan is something less than ideal. First, because FAIR represents a residual market with inherently greater losses, its policies are more costly.
And the FAIR Plan does not offer full coverage. It offers the fire insurance that most lenders deem mandatory, but no theft or liability coverage. Homeowners who want additional coverage must purchase a "wrap-around" policy from another carrier.