SAN FRANCISCO -- As federal, state and local officials grapple with the financial and physical ruin wrought by Hurricane Katrina, momentum is building to make earthquake insurance offered by the semipublic California Earthquake Authority more affordable.
Fewer than 15 percent of California homeowners currently pay to protect their properties against earthquakes. That is about half the number who had earthquake coverage in 1995, the year after the magnitude-6.7 Northridge earthquake, which with $40 billion in losses was the nation's costliest natural disaster before Katrina.
"Katrina is a wake-up call for California," Insurance Commissioner John Garamendi said. "If a catastrophe occurred, a high percentage of the homes wouldn't have insurance. I'm clearly in a mood to drive prices down."
In November, Garamendi plans to convene state insurance commissioners from across the country to discuss creating a national catastrophe insurance program that would make premiums more affordable for homeowners living in areas affected by natural disasters.
For many California residents, foregoing earthquake insurance is simply a matter of evaluating cost and risk. While geologists say temblors as violent as the 1994 Northridge quake can occur in the state once every decade, homeowners often conclude that paying expensive premiums to guard against Mother Nature's unpredictable whims doesn't make sense.
But lower rates could be enough to persuade Constance Bernstein, who said she doesn't now carry earthquake insurance on her ornate San Francisco Victorian because it would cost thousands of dollars.
"In the last earthquake, nothing happened to my house. One tray fell off a shelf," said Constance Bernstein, a legal consultant in San Francisco. "I live here fearlessly. I know it's going to happen, but I just don't think it's going to happen to me."
Given the prevalence of such attitudes, state officials concede they must make earthquake insurance an attractive and viable option for more families. Last month, the California Earthquake Authority proposed lowering rates by 22 percent, a plan that would cut the average $699 annual premium to about $615.
The CEA holds 66 percent of the entire earthquake insurance market in California.
If Garamendi approves the plan, more than half of CEA policyholders would see premiums decrease by $100 per year, depending on the location and age of their buildings, among other factors, Earthquake Authority spokeswoman Nancy Kincaid said.
Meanwhile, just more than 45,000 of the CEA's 730,000 current policyholders could see a rate increase of as much as 40 percent, Kincaid said.
The authority based its proposal on a geological survey that predicted the risk of earthquake damage was less than previously thought. A sudden drop in rates for reinsurance, or the insurance policies taken out by insurance providers, also made officials optimistic that coverage costs can be brought down, at least for the majority of homeowners.
In this respect, California may be in a unique position. States like Florida and Texas, which also manage disaster insurance programs, are unlikely to drop their rates since policyholders' money is still going to cover recent catastrophic losses, experts said.
While earthquake hazards may be lower than expected in much of the state, just the opposite is true in Riverside and Humboldt counties, according to the study by state and federal authorities. In Riverside County, geologists discovered that the desert soil around the San Jacinto fault puts homes there at significant risk, just as the movement of geologic plates in Humboldt County makes houses more vulnerable to landslides.
The California Earthquake Authority proposal would actually increase rates for about 15 percent of the agency's policyholders, most of whom live in those areas, said authority spokeswoman Nancy Kincaid.
As the world's largest residential earthquake insurer, the publicly managed CEA can influence rates. The Legislature created the agency after the Northridge quake left many homeowners in legal tussles with insurance companies unwilling to cover the damage to their properties.
Earthquake insurance rates are not based on a home's value, but rather on the cost of rebuilding. So while the CEA sells policies to homeowners through participating private insurers, the insurance companies are responsible for any payout the authority can't handle after a major disaster.
Both national and state insurance associations oppose the rate cut for precisely that reason, arguing it would compromise the agency's financial health.
"We feel that the rate decrease is too extreme," said Sam Sorich, president of the Association of California Insurance Companies. "We thought the analysis should have been more conservative."
Unless there's a major change in rates, however, Ellie Dwight, a high school administrator in Sebastopol, is likely to take other kinds of precautions.
"After Katrina hit, I started thinking about earthquakes again. I'm definitely going to fill my barn with supplies and water. But nope, no insurance," Dwight said. "It seems kind of crazy, but no one gets it."
Earthquake insurance rates differ
Proposed changes to California's earthquake insurance rates differ regionally. To encourage more property owners to buy earthquake insurance, the California Earthquake Authority has recommended overhauling the existing rate structure. The plan, which must be approved by Insurance Commissioner Garamendi, would lower earthquake insurance premiums for many homeowners in Contra Costa and Los Angeles counties, but would bring rates up in most of Riverside and Humboldt counties. Here are some specific examples of how rates would change under the proposal: