Farmers hikes deductible on homeowners' quake policies.

Move comes as 20th starts to drop all quake coverage

With one major insurer already pulling out of the homeowners' earthquake coverage market, word surfaced last week that another -- Farmers Insurance Group of Cos. -- has boosted its deductible for such coverage and lowered coverage limits on commercial quake insurance policies.

Farmers increased its deductible on homeowners' quake policies from 10 percent to 15 percent, in order to reduce its future earthquake exposure, Farmers spokesman John Millen told the Business Journal last week.

Los Angeles-based Farmers began raising the deductible on all new earthquake policies beginning May 1, Millen said.

"If someone is looking at a 15 percent deductible instead of 10 percent, it means our payout would be less on those policies, obviously," Millen said.

Farmers' decision to raise the deductible came at about the same time that Woodland Hills-based insurer 20th Century Industries Inc. has begun to exit the earthquake insurance market.

Despite these efforts to limit earthquake exposure, Insurance Department officials "don't see a pending problem" with the availability of earthquake insurance, said Candysse Miller, spokeswoman for the California Department of Insurance.

Farmers and 20th Century were among the insurance companies hardest hit by the Jan. 17 Northridge earthquake, according to insurance industry experts.

The financial safety and soundness ratings of both Farmers and 20th Century were downgraded last week by insurer rating agency A.M. Best Co. due to massive losses they suffered in the quake. Insurers use the Best ratings as a measure of financial health for policyholders and investors.

20th Century, which suffered $600 million in losses from the Jan. 17 shaker, was downgraded by Best one notch from A-minus to B-plus.

That B-plus rating is the lowest of the financially secure ratings given, said John Snyder, senior vice president in charge of Oldwick, N.J.-based Best's property-casualty division. "Very few large companies have ratings below B-plus."

Farmers, which suffered more than $1 billion in losses from the quake, was downgraded one notch from A to A-minus. That A-minus rating is the lowest of the "excellent" ratings given, according to Eric Simpson, Best vice president.

"We are very pleased to have retained the, in quotes, "excellent" Best rating in this very challenging year," Millen said.

In addition to the increased deductible, Millen said, the company is taking other steps to limit its earthquake exposure.

Farmers has "lowered maximum limits on how much coverage we'll provide" on its commercial earthquake insurance policies, he said. Millen declined to say how much the earthquake policy limits were reduced.

Also, Farmers officials are seriously reviewing the need for rate increases on homeowners and homeowners' earthquake policies, Millen said.

"There are some discussions going on with Farmers regarding rates," said Miller, spokeswoman for the state Department of Insurance. But Farmers has not yet officially filed a rate-hike request, she added.

Miller said that since the quake some other insurers have changed their earthquake underwriting policies. For example, some insurers no longer write earthquake insurance for older buildings or unreinforced masonry buildings, she said.

She declined to say which companies had changed underwriting standards.

Roger Tompkins, vice president of California operations for Oak Brook, Ill.-based State Farm Insurance Cos., said the company has stopped selling earthquake insurance policies with a 5 percent deductible since the Northridge quake.

State Farm, the state's largest insurer, was rare in that it offered policyholders who were willing to pay more for it a 5 percent deductible earthquake policy, Tompkins said.

State Farm offered that policy in addition to 10 percent deductible earthquake coverage, which is the industry standard, Tompkins said.

Since the quake, company officials have decided to sell the 10 percent deductible policy only, he said. Policyholders who already have the 5 percent deductible may renew their policies, he added.

Asked if State Farm plans to raise its deductible to 15 percent, Tompkins said State Farm lawyers have advised him not to discuss future plans in order to avoid violating anti-trust laws.

Dick Donegan, regional underwriting manager for the L.A. area for Allstate Insurance Co., said the company has not taken any steps yet to reduce its earthquake exposure since the Northridge quake.

"But we are very concerned with earthquake exposure and with what has happened with 20th Century," he added. "As a result we are looking at everything (regarding earthquake exposure), because we can't be the only player in the marketplace."