sacramento -- Consumers could pay an average of 8% more a year for state earthquake insurance under a plan to restructure the finances of the California Earthquake Authority, while insurer contributions to the state agency would be cut by a third.
Under a proposal approved by the authority's board of directors on a 2-1 vote, insurance companies would get a $1-billion reduction in the amount of money they must make available to pay claims in the event of a major earthquake.
Supporting the potential rate hike for consumers and the cut in assessments for insurance companies were board members Gov. Arnold Schwarzenegger and Insurance Commissioner Steve Poizner, both Republicans. Opposing was Democratic state Treasurer Bill Lockyer.
Backers of the financing plan say it would avert a potential insurance crisis, bolster a shaky housing market and keep California's economy strong. But Lockyer called it "a bad deal" for homeowners and consumers.
About 755,000 Californians have earthquake policies issued by the state. They pay average annual premiums of about $700.
The compromise, which is being promoted by state Sen. Michael Machado (D-Linden), now goes to the Legislature. To become law early next year, the measure needs to win approval before the Legislature recesses Sept. 14.
The bill, SB 430, comes more than a decade after the earthquake authority was established. At the time, the law provided that for the first 12 years insurers would be obligated to provide $2.2 billion to help cover claims from a moderate earthquake.
But that provision expires Dec. 1, 2008, and the state is figuring out what to do. The earthquake authority says it is essential to have the money available, but the insurance industry says its obligation ceases next year.
The compromise hammered out would maintain the companies' obligation, but at a lower dollar amount. And the difference would be made up partly by higher premiums to be paid by consumers.
Insurers insist they are not abandoning the earthquake authority. They point out that the plan calls for them to continue providing $1.2 billion in claims-paying power -- plus an unrelated $1.5 billion in continuing industry obligations to the authority.
"This makes the CEA stronger," said Sam Sorich, president of the Assn. of California Insurance Cos. "We're taking on a new responsibility."
