Consumers Union releases results of survey of escrow companies which dispel myth that homeowners cannot find insurance in California.

homeowners insurance availability "crisis" is overblown, according to the results of a telephone survey conducted by Consumers Union of more than 100 escrow companies.

New home buyers in the state's most quake-prone areas - Los Angeles, San Francisco and Oakland - are finding sufficient homeowners insurance to close escrows, the survey concluded, although consumers are having to shop around more for the coverage. The survey also finds that consumers are paying more for less coverage. (Mortgage lenders require that home buyers purchase homeowners insurance before they will finance a home loan.) The consumer group warned the Legislature not to "push the panic button" as it considers the California Earthquake Authority (CEA) plan, which would substantially shift earthquake risk from the insurance industry to consumers and to the state of California.

"Our survey indicates that the homeowners insurance `crisis' in California has been grossly overstated," said Betsy Imholz, special projects advocate for Consumers Union's West Coast Regional Office. "Escrow agents in Los Angeles, San Francisco and Oakland indicate that the market is supplying enough coverage to help new homebuyers close their escrows. There appears not to be the shortage of homeowners and earthquake insurance policies that the insurance industry and the Insurance Department claim there is. People can find insurance throughout California. It might be a little more expensive, with less coverage, but it's available. The Legislature should scrap the CEA. Why is the state considering going into the business of selling residential earthquake coverage when the market seems to be meeting the demand?"

Of the 108 escrow companies surveyed in Los Angeles, San Francisco, Alameda, San Leandro, Oakland and Berkeley, only two agents (in San Francisco and Alameda) said they personally handled home purchases that were not completed because of lack of insurance.

Thirty-one percent of the escrow officers contacted said that home buyers were not having trouble finding homeowners insurance. Nearly 70 percent of escrow officers surveyed said that their clients had some trouble finding insurance, that the prices were often high, but that nearly all home buyers could find a homeowners policy if they shopped around for the best deal.

The industry and Department of Insurance continue to push for legislative approval to start up the CEA, a state-run earthquake insurance business. Consumers Union, Proposition 103 Enforcement Project and United Policyholders oppose the CEA.

In 1985, the insurance industry sponsored legislation that requires companies to offer earthquake insurance if they sell homeowners insurance. Between 1985 and the Northridge earthquake, companies made substantial profits from earthquake insurance premiums, and the investments made on those premiums. As a result of their own marketing decisions, some companies sold so many earthquake and homeowners policies that they left themselves vulnerable to a big quake.

The Northridge earthquake in January, 1994, resulted in companies paying out nearly $8.4 billion in claims. Soon after, many insurers either stopped offering, or substantially limited, the sale of homeowners insurance.

After Northridge, the industry pleaded with the Legislature to help reduce their earthquake exposure for fear that another big quake could financially devastate companies. Heeding those concerns, the Legislature approved, and Gov. Wilson signed into law, a measure that allows companies to sell a bare-bones earthquake policy, known as the mini-policy, to meet their requirement to offer such coverage. According to the Department of Insurance, the mini-policy would reduce the industry's risk by 50 percent. If all companies began selling the mini-policies, another Northridge quake today would cost companies $4.3 billion, roughly half of the $8.4 billion of actual paid claims.

"California now allows insurance companies to offer earthquake insurance mini-policies," said Imholz. "These policies are new and have already begun to improve the homeowners insurance market. As this survey suggests, the market for homeowners insurance is not in a state of crisis. To create a new state agency, like the CEA, to fix a crisis that doesn't exist doesn't make sense."

The survey was conducted by Consumers Union staff on February 1 to 2. The survey consisted of three questions and all escrow companies in the three most quake-prone regions (a) were contacted.

(a) All escrow companies listed in Greater Los Angeles; San Francisco; and Oakland, Alameda, Berkeley and San Leandro Pacific Bell Yellow Pages were called. Of the 120 companies contacted, 12 did not respond. CU staff asked to speak to a company residential escrow officer. Three questions were asked: Are home buyers having trouble getting homeowners insurance? How many of your clients have been able to get insurance? Have you handled any home purchases that have not been completed because they cannot get insurance?

Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information gathering organization, serving only the consumer. It is a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, its mission has been to test products, inform the public, and protect consumers.

CONTACT: Consumers Union

Mariko Takayasu, Paul Carney, 415/431-6747