INSURANCE PROBLEM NOT QUITE A CRISIS : POLICIES STILL SOLD AMID QUAKE AUTHORITY DEBATE.

Byline: Anne Burke Daily News Staff Writer

With plans to form a California Earthquake Authority stalled in the state Legislature, some state officials and real estate brokers say the state is in the midst of a homeowners insurance crisis.

But calls to major insurers and Realtors last week revealed that homeowners insurance - although harder to get than before the Northridge Earthquake - can be found.

``We are accepting limited amounts of new business in the San Fernando Valley,'' said State Farm Insurance spokeswoman Tracy Fleischman. ``But because of the risk we have in that area, there are very few instances where we would be able to take on new business.''

According to a Department of Insurance survey, nearly 81 percent of 173 insurance companies surveyed in California were writing homeowners policies as of March, but with restrictions.

That included even the ``Big Three'' - State Farm, Allstate and Farmers - which have been widely rumored to be temporarily out of the business of writing quake policies in California.

Less than one-half of 1 percent of the surveyed companies were offering new homeowners policies without restrictions. That was down from 5 percent in September and 7 percent in May 1995, according to the department's survey.

Restrictions imposed by companies writing policies can be disheartening for the insurance shopper. For example, about one-third of the companies that have restrictions aren't keen on writing policies on homes that are too close to fault lines or brush areas.

When questioned during interviews, several representatives of the real estate industry - including the Los Angeles megabroker Fred Sands - said they were unaware of a single home sale falling through because the prospective buyer could not get insurance.

``The deals are closing, it just takes three times as much work,'' said Sands of Fred Sands Realtors, the largest one-owner real estate company in California.

``We're all scrambling for (insurers), and the prices have gone up almost prohibitively for those buyers who are just squeaking by,'' said Dottie Nagatoshi, a Realtor working in the north San Fernando Valley.

Finding homeowners insurance ``takes time and in many instances, it takes a long time, especially if you're living right on the faults,'' said Jerry Davies, communications director for the Personal Insurance Federation in Sacramento, which represents companies writing 50 percent of insurance policies in California.

In testimony before the state Legislature, Insurance Commissioner Chuck Quackenbush said insurance executives have told him that they are prepared to cancel as many as 1 million policies if the Legislature does not pass the CEA or something similar.

Richard Wiebe, a Department of Insurance deputy commissioner, said he could not divulge which companies those executives represented, and phone calls placed to the Big Three failed to turn up their identities.

But they apparently do not include Farmers, or USAA, the nation's fourth-largest homeowner insurer, which sells new homeowner policies to military officers and former dependents.

``Our interest is in providing coverage to our members who reside in California,'' said USAA spokesman Mike Trevino. ``USAA does not expect to nonrenew policyholders if the CEA does not pass.''

``Farmers has no plans to cancel any homeowners policies if the CEA does not pass,'' said Diane Tasaka, a spokeswoman for the state's third largest homeowner insurer, Farmers Insurance.

State Farm's Fleischman said the company had not decided what it would do if the CEA does not pass. Allstate spokesman Elio Montenegro said his company would cross that bridge when - and if - it comes to it.

In a press release put out by the pro-CEA California Association of Realtors, the group's president, Rick Snyder, states that ``it is becoming more commonplace to hear of prospective home buyers who are unable to obtain homeowners insurance and whose home purchases are threatened.''

In a telephone interview, Snyder conceded that he does not know of any cases in which prospective home buyers were unable to complete deals because they couldn't find insurance.

The crisis, Snyder explained in the interview, is actually a ``developing crisis.''

Since the Northridge temblor, quake rates have increased an average of 78 percent statewide, Wiebe said.

Despite the high cost, more and more Californians are buying quake insurance. Before the Northridge temblor, 25 percent of people with homeowners policies had quake coverage, but more than 30 percent have it today, said Department of Insurance spokeswoman Candysse Miller.

``People are willing to pay for the product,'' she said.

State insurance officials and the insurance companies themselves say that the industry, reeling from $8.5 billion in insured residential losses from the Jan. 17, 1994, Northridge Earthquake, can no longer afford to do business in California without something to soften the blow when the next temblor hits.

They said they see the proposed California Earthquake Authority - a state-run, $10.5 billion fund that would take on the bulk of the state's quake insurance risk - as the solution.

The authority, which would be financed by insurers, investors, reinsurance companies and policy holders, won approval in the Assembly, but last week it stalled in the Democratic-controlled Senate, failing to muster the required two-thirds majority vote.

But the state agency is not considered dead yet. Senate President Pro Tem Bill Lockyer, D-Hayward, who voted against it, said he expected more fine-tuning to be done before the end of the legislative session Aug. 30.

Sen. Charles Calderon, D-Montebello, one of the key architects of the earthquake authority, said he will continue working through the summer recess to reach a compromise solution. The defeat in the Senate may require him to seek a simple majority vote, which would mean the state authority would not take effect until Jan. 1.

In casting their votes, Senate Democrats sent a strong signal that the authority needs to be a better deal for homeowners. On the Senate floor, Lockyer called the CEA the state's equivalent ``to the S&L bailout'' for large insurers.

``I think the policy that is before us is not quite fair enough to consumers,'' Lockyer said. ``I think we need to tweak it one more time and make it more consumer-friendly.''

Meanwhile, many insurers have stopped writing new policies, limited the coverage they do offer, canceled coverage, or withdrawn from the market entirely since the Northridge Quake.

``In the more than 20 years that Farmers has been offering earthquake insurance, we collected a total of $500 million (in premiums). In just one single event of the Northridge Quake, we paid out $1.7 billion,'' said Farmers spokeswoman Tasaka.

To make matters worse, starting this week and continuing for a year, 20th Century Insurance Co. will not be renewing the remaining 150,000 of its homeowner and condominium policies (none of which include quake coverage), at the rate of about 12,500 a month.

Hard hit by the Northridge Quake, the company agreed with state insurance regulators to get out of the business.

That's a lot of homeowners who will be scrambling for a new insurer, and will only worsen the crisis, Miller said.

The department isn't sure where the ex-20th Century policy holders will find new insurers, Miller said. But those who come up empty-handed after working the phones should call the department's consumer hotline, (800) 927-HELP, she said.

What makes it particularly difficult to do business in California, according to insurers, is the state's decade-old linkage law, which forces insurers to offer quake coverage whenever they sell a regular homeowners policy.

Efforts to delink the two types of insurance in the CEA bill failed, and Senate Democrats are unlikely to accept such a proposal when the Legislature reconvenes Aug. 5.

Consumer groups argue that pro-CEA forces have manufactured the crisis in an effort to whip the state into a panic and push through passage of the authority.

The CEA, claims Harry Snyder, spokesman for the nonprofit Consumers Union in San Francisco, amounts to corporate welfare by shifting financial responsibility for quake losses from insurers to taxpayers.

Snyder said the pool of money in the CEA would not be sufficient to pay out losses in a devastating quake, and the difference would be picked up by taxpayers.

``It takes the insurance industry off the hook, which is what the Big Three want,'' Snyder said.

``The way the California Earthquake Authority has been structured, it's not adequate to pay claims, and it's not fair to consumers to sell a product they're counting on to rebuild their house when it won't be enough to pay them,'' he said.

As now written in the proposed CEA legislation, the average rate for quake insurance in the San Fernando Valley under the authority would be about $3.32 per $1,000 of coverage, Wiebe said.

The deductible would be 15 percent. The plan would pay up to $5,000 for contents and $1,500 in its first year for living expenses for displaced homeowners.

Under the CEA, homeowners would pay premiums for their quake coverage directly to the authority, and buy other types of homeowners insurance on the open market.

Some homeowners say coverage under the CEA is so poor that it's hardly worth the trouble.

``Fifteen hundred for living expenses? What good would that do us? Five thousand dollars for contents? That's ludicrous,'' said Melanie Teeter, who is still displaced from her Winnetka home due to damage from the Northridge Quake.

Others complain that the CEA benefits rich homeowners at the expense of the poor.

``The CEA is asking lower-income homeowners to subsidize the exposure of wealthy homeowners,'' said Genie Chough of the San Francisco-based Greenlining Institute, a coalition of 30 nonprofit, multiethnic organizations.

``Basically, it's asking everyone to pool their risk,'' she said. ``However, lower-income homeowners don't have much to gain from it.''

While the debate over the CEA continues, Valley homeowners continue to struggle with the troublesome market.

Chuck Spears of Northridge had his insurance canceled after he filed a claim following the 1994 quake. His insurance broker, Gwen Larson of Sylmar, found a new company for him. But the rate gave Spears another jolt.

He's paying $1,440 a year for $168,000 worth of quake coverage. That's a whole lot more money - nearly five times as much - than Spears paid for quake insurance before the Northridge temblor, and a whole lot less coverage.

Spears' deductible is 15 percent, and he has only about $5,000 coverage for contents.

``I do not like it at all. It's crazy. However, if you don't have it, and something happens, you're really stuck,'' said Spears, who owns a small manufacturing plant in Sylmar.

While Spears' coverage is about the same as he would get under the CEA, his rate now is several hundred dollars higher than he would pay under the authority.

The coverage is also about the same as that offered under so-called mini-policies, which offer bare-bones coverage. Many other homeowners have similar quake policies.