POINT - COUNTERPOINT : DEBATING QUAKE COVERAGE INDUSTRY WANTS HANDOUT.Byline: Betsy Imholz and Paul Carney Mr Justice Paul Carney is one of the most senior judges of the Irish High Court and the presiding judge of the Central Criminal Court. He is widely regarded as a leading expert on Irish criminal law and has presided over murder and rape trials since his appointment to the High
In an era when government downsizing (1) Converting mainframe and mini-based systems to client/server LANs.
(2) To reduce equipment and associated costs by switching to a less-expensive system.
(jargon) downsizing appears to be a popular theme, Insurance Commissioner Chuck Quackenbush Charles "Chuck" Quackenbush (born 1954) is a Florida law enforcement officer and former California politician. He served as Insurance Commissioner of California from 1995–2000 and as a California State Assemblyman representing the 22nd District, from 1986–1994. is going against the grain.
The Republican commissioner and the state's largest insurers want to create a $10.5 billion public agency to sell residential earthquake insurance Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake damage. - the California Earthquake Authority Established in September 1996 by the California Legislature, the California Earthquake Authority is a privately funded, publicly managed organization that sells California earthquake insurance policies through participating insurance companies. .
Proponents contend the CEA CEA carcinoembryonic antigen.
CEA (Carcinoembryonic antigen) will help jump-start California's real estate market by making homeowners insurance more available. But the biggest winners from the creation of such an earthquake authority would be the ``Big 3'' insurers - State Farm, Allstate and Farmers.
The state of California has already bent over backward to help the industry. Last year, the Legislature and Gov. Pete Wilson For others named Pete Wilson, see .
Peter Barton Wilson (born August 23, 1933) is an American Republican politician from California. Wilson served as the thirty-sixth Governor of California (1991–1999), the culmination of more than three decades in the public arena that approved a massive legislative relief measure that reduces the industry's earthquake liability by 50 percent.
But that's not enough for the big insurers. They are threatening to cancel 1 million policies unless the CEA is approved. The threat has placed legislators in an uncomfortable position, particularly since the ``Big 3'' have about 60 percent of the homeowners insurance market.
The plan to create a state-run insurance entity is bad public policy. The plan places California, its homeowners, and ultimately, taxpayers at great risk since liability associated with earthquakes would be shifted from insurers to homeowners and the state of California.
In addition, insurers would escape paying taxes on earthquake policies sold through the CEA, estimated at a loss of $23 million to the state budget annually.
At the heart of this debate is a 1985 law, sponsored by the industry, that requires insurers to offer earthquake coverage with every homeowners insurance policy they sell. The companies opted to take on writing earthquake policies in exchange for excluding all coverage for damage under general homeowners policies.
This was a smart business decision on the part of the industry since only 25 percent of homeowners buy earthquake policies while 100 percent have general homeowners policies.
After Loma Prieta
Loma Prieta is a Northern California mountain with elevation 3,786 feet (1,154 m) and located at approximately 37.114° N, 121. , which hardly caused a dent in the industry's profit margins, companies began lowering the cost of earthquake policies and heavily marketed the product throughout the state.
By 1994, the insurers had sold too much, overexposing themselves in the California property insurance market. Regardless of earthquake insurance risks, the ``Big 3'' needed to decrease their homeowners insurance exposure in the state.
Then Northridge hit with residential claims losses totaling more than $8 billion. Many companies stopped selling or severely restricted selling new homeowners policies and they used Northridge and the requirement to offer earthquake insurance with homeowners policies as an excuse to withdraw from the California homeowners market.
As a way of further curtailing their earthquake business, the companies developed a proposal for the state to take over the risks that the companies had created by aggressively selling earthquake insurance.
Here's how the Authority would work: Insurers with at least 75 percent of the state's residential property market must participate in the CEA in order for it to become operational. Insurers would be required to contribute as little as $750 million.
Additional funding would come from several layers of assessments on insurers (which they admit will be passed on to their other policyholders) and on CEA earthquake policyholders directly. Funding also would be sought from private investors and from re-insurance companies.
Participating insurers would no longer write residential earthquake insurance. The CEA would sell earthquake policies to homeowners. According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. the Department of Insurance's initial projections, consumers would pay far more for CEA policies than for policies currently offered by the private market. After realizing this wasn't politically smart, the department lowered the estimate of the cost for a CEA policy.
CEA will charge consumers high prices to cover the costs of creating a new agency, purchasing costly reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. ; and paying private investors (e.g. insurance companies) a 21 percent rate of return on their CEA investments.
In the event of a major earthquake, the CEA could not pay claims until it accurately assesses the total cost of damages. This could take months, possibly years.
CEA policyholders would face assessments of more than 20 percent of their annual premiums for as much as 10 years after an earthquake if the funds fall short. To add insult in·sult
A bodily injury, irritation, or trauma.
insult Medtalk noun Any stressful stimulus which, under normal circumstances, does not affect the host organism, but which may result in morbidity, when it to injury, if there are not enough funds in the CEA, homeowners would only receive partial payout pay·out
1. The act or an instance of paying out.
2. A percentage of corporate earnings that is paid as dividends to shareholders. on their claims. This is not insurance.
Before rushing into the creation of a new government agency, the Legislature should conduct a thorough review of a new law that allows companies to sell ``no-frills'' earthquake policies to meet the requirement that they offer earthquake coverage.
According to the Insurance Department, the privately-offered ``no-frills'' policies will cut earthquake liability for companies by half. The Department and insurers agree that the ``no-frills'' policies, given time, will allow the homeowners market to open again.
Creating a new earthquake insurance agency to bail out California's biggest insurers is a threat to consumers and taxpayers, not a help.
MEMO: Betsy Imholz is the Special Projects Advocate for Consumers Union's West Coast Regional Office. Paul Carney is a former intern intern /in·tern/ (in´tern) a medical graduate serving in a hospital preparatory to being licensed to practice medicine.
in·tern or in·terne
n. with Consumers Union, and a graduating senior from Stanford University Stanford University, at Stanford, Calif.; coeducational; chartered 1885, opened 1891 as Leland Stanford Junior Univ. (still the legal name). The original campus was designed by Frederick Law Olmsted. David Starr Jordan was its first president. .