More California homeowners are passing on earthquake insurance.
Between 1999 and 2003, there was a 52% decline in the number of earthquake policies in the state, according to the California Department of Insurance. Today, less than 15% of California homes have the coverage.
Since a standard homeowners' policy doesn't cover earthquake damage, the vast majority of consumers will have to rely on federal grants or loans -- or their own bank accounts -- to pay for any future quake-related repairs.
State insurance officials say reasons for this decline are complex and numerous and include high premiums and deductibles, policy restrictions and consumer apathy. As time passes after a temblor, homeowners tend to grow complacent and often view earthquakes as an unlikely threat, according to California Department of Insurance research.
Insured losses from the 1994 Northridge quake totaled more than $17 billion, according to the Insurance Information Institute. After that earthquake, major insurers threatened to abandon the California homeowners' insurance market until the Legislature stepped in to create the California Earthquake Authority
Nearly two-thirds of the earthquake policies in the state today are issued by the public-private carrier formed in 1996. Authority members include major insurers such as Allstate Insurance Co., Farmers Insurance Group and State Farm Insurance. Non-authority companies, including GeoVera Insurance Co. and Pacific Select Property Insurance Co., issue about a third of the quake policies.
Consumer advocates have long complained that earthquake insurance costs too much and offers too little protection. A California Earthquake Authority policy, for instance, comes with a deductible of 10% or 15%.
By comparison, two-thirds of Florida homeowners have a 2% deductible for hurricane damage -- which is part of their standard coverage and not a separate policy -- and "only a handful of people in high-risk areas, 15%," said Insurance Information Institute spokeswoman Loretta Worters.
Why the hurricane-earthquake gap?
"The problem is that the California Earthquake Authority is not able to spread its risk over a large number of homes," said state Insurance Commissioner John Garamendi, an authority board member.
The post-Northridge high was 2.4 million earthquake policies in 1996. Last year the number was 1.1 million.
"And those homes happen to be in the riskiest areas," Garamendi said. "So you have a very small pool over which to spread the risk, and that leads to an expensive and barebones policy with a high deductible."
Two ways to boost the popularity of earthquake insurance, Garamendi believes, are to create a less expensive policy with a lower deductible, or to "spread the risk" by developing a national natural-disaster insurance program that encompasses a range of calamities, including earthquakes, floods, hurricanes and even terrorist attacks.
Then again, the only thing that may revive earthquake insurance is another major quake.