California Earthquake Insurance

The 1994 Northbridge earthquake was the single most expensive earthquake in California's history and shook up the earthquake insurance California industry in a way almost as dramatic as the quake itself.

California Earthquake Insurance in Crises

The Northbridge earthquake not only killed 72 people and injured 9,000, it also led to $20 billion in earthquake damage claims. The result of which was that many Californian insurers either refused to offer, or severely restricted earthquake insurance in California. The lack of insurance mitigation was unacceptable to the California State Legislature which set up the California Earthquake Authority soon after. The issue of water damage in Los Angeles and who pays its very much a current issue.

The CEA is a quasi-public body which combines private funding and publc administration. Insurance companies can voluntarily be a member of the CEA. California now makes it compulsory for companies offering homeowners' insurance to also include an offer of earthquake insurance. This is generally offered by a policy backed by the California Earthquake Authority. Premiums paid to the insurer are pooled in the CEA to cover claims from homeowners with a CEA policy from one of the member insurers.

There is a fairly large caveat - the State of California does not guaranteed the CEA fund. Claims from a major earthquake could drain the fund. It will also not cover homeowners who insure with non-CEA affiliated insurance companies who subsequently go bust after a major California earthquake.

Earthquake Insurance California - Eligibility

CEA covers the following groups of Californian homeowners and residents:

• homeowners
• mobile home owners

• condo owners

• renters

Except for renters all policy owners are covered for replacement up to the value of their property plus cover for personal contents and living expenses. Renters only get contents and living expense cover.

Earthquake Insurance California - Cover Levels

CEA backed earthquake insurance covers the following:

• replacement or repair of an insured home, condominium, trailer home up to the agreed policy value and in excess of the policy deductible.

• if your home is uninhabitable - additional living costs up to $1,500

• personal property including furniture and personal items up to $5,000

Home owners can also chose to pay extra premiums and:

• lower the deductible from 15% to 10%

• increase the personal property coverage up to $100,000
• increase additional living expenses up to $15,000

• purchase an additional $10,000 in building code upgrade cover

Earthquake Insurance California - Is It For You?

This is a tricky question - the reality is that quite possibly the CEA may be bankrupted by the claims from a major tremor in California. The weakness in the model is that CEA only covers those who live in a high-risk area for earthquakes i.e. California. It would be a much more robust scheme if the scheme was in fact national at Federal level so that the the risk could be spread across the country. The other issue is the exclusion of many items including outbuildings such as detached garages and spa rooms, swimming pools, spas and landscaping - all of which could easily add up to six figure sums.

Whatever you chose carefully weigh your options before you take out earthquake insurance.

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