Fewer carry temblor insurance as industry changes its policies.

WHEN the Northridge earthquake slammed through the Los Angeles region it upended more than people's lives. It set off a revolution in the insurance industry.

The aftershocks go well beyond the confines of earthquake insurance, with some contending that the disaster ushered in an era of reduced homeowner benefits. The industry, meanwhile, claims it is only applying the lessons of Northridge and other recent catastrophes.

"The insurance industry knows it has the public over a barrel, and their response to the Northridge earthquake was this kind of broad attempt to reduce exposure across the board," said Doug Heller, an insurance specialist with the Foundation for Taxpayer and Consumer Rights.

Ten years ago, earthquake policies were relatively inexpensive and plentiful, with generous benefits. Today, it's expensive, with more meager benefits offered by fewer carriers. As a consequence, only 15 percent of homeowners purchase it now, versus about one-third before 1994.

"The Northridge earthquake almost bankrupted the industry," said Jim Armitage, a principal with Arroyo Insurance Services Inc., a South Pasadena brokerage.

Temblors that occurred prior to 1994, including the Whittier earthquake and the Loma Prieta earthquake in the Bay Area, caused far less damage.

That gave insurers a false sense of security, said Dan Dunmoyer, president of the Personal Insurance Federation of California, an industry trade group. "Some of our members even lowered their earthquake deductibles," he said.

After the Northridge quake, the state created the California Earthquake Authority, a public agency that caps the risk of its members, which include State Farm Insurance, Allstate Insurance Co. and Farmers Insurance Group.

The authority represented a compromise for the industry, which had sought to do away with the requirement for earthquake coverage. But not everyone believes the end result has been beneficial to homeowners.

"The biggest public policy problem is that so few people carry earthquake coverage now," said Amy Bach, executive director of United Policyholders, a consumer advocacy group.

Earthquake coverage now being offered in California has been scaled back and is more expensive. For example, most policies cover only a principal dwelling on a property, while severely restricting coverage for a home's contents and for living expenses during repairs.

Deductibles have tripled in some cases to 15 percent of damages, and the average annual premium for a $250,000 policy was $545 in 2002, said Bruce Patton, a senior staff counsel at the state Department of Insurance. "It generally costs about twice as much (as the old policies) and gets you half the coverage," Patton said.

Industry officials say the Northridge quake showed that it doesn't make fiscal sense to offer rich earthquake policies. "It's better to be giving people a home and a roof over their heads than to pay all the other contents and the other accoutrements," Dunmoyer said.

The Northridge earthquake also marked the near extinction of the homeowners' policies that guaranteed insurers would pay the full cost of replacing a home even if it far exceeded the amount of coverage purchased.

Such policies were common before the Oakland Hills fire of 1991, but after that blaze destroyed 2,500 homes and prompted over $2 billion in claims, they were phased out.

Any doubt ended with Northridge. Now, insurers generally offer replacement coverage with a set dollar amount or so-called extended replacement coverage, which offers a specific margin of extra coverage.

The change has forced carriers, using new software, to more precisely determine the replacement cost of a dwelling, Armitage said. But after last fall's wildfires destroyed more than 3,000 homes in the region, some homeowners found themselves underinsured with these policies.

Insurance Commissioner John Garamendi said the problem rests with both carriers, which may not be adequately calculating replacement costs, and homeowners seeking to cut comers by buying less coverage.

Heller, the consumer advocate, said such problems are an outgrowth of attempts by the industry to limit risk by cutting all sorts of coverage. "There were people joking in Sacramento that the next thing we will see is the California Mold Authority," he said.