A recent article in the Wall Street Journal states that "some experts believe that a repeat of the 1906 [San Francisco] quake could lead to damages far greater than Hurricane Katrina, which cost insurers $40 billion. Yet less than 15% of California homeowners own quake insurance. Many find coverage too expensive and are willing to take their chances.

"In the wake of last year's hurricanes, many private insurers are pulling away from disaster-prone areas, arguing that they are not allowed to charge enough to offset potential losses. States have been trying to fill the void, but often with limited effectivenes...In California, a number of firms only wirte earthquake insurance through a state-run entity that caps their losses."

The article then goes on to tell about a firm, GeoVera Holdings, "among the largest sellers of quake insurance to homeowners on the open market in California, which is trying to buck the trend and make a profit at the same time. About 40% of its business -- worth roughly $100 million in annual premiums -- comes from selling quake insurance there."

"GeoVera executives believe they can use their brains -- by devouring data on the homes it insures, and keeping a close eye on the location of its customers and the type of coverage they're buying -- to make the company profitable."

They monitor their exposure (types of houses, types of foundations, types of soil, on a slope or not, how close to an active fault) and predict potential losses. The article goes into more detail about just how they do this.

The point is that "many of GeoVera's customers hve substantial equity in their homes." IOW, "they've got too much at stake to forgo coverage."

The 1994 Northridge quake "cost insurers $15 billion in losses and killed 61." "But after Northridge some companies balked at writing new homeowners policies for fear of having to offer earthquake coverage" (which CA required insurers to offer sepaarate quake policies) "and potentially leaving themselves overexposed.

"California responded by allowing sales of scaled-down policies for earthquakes, with a 15% deductible, a $5,000 cap on damage to a home's contents and $1,500 for living expenses. To encourage companies to keep selling regular homeowners policies, the state also formed the California Earthquake Authority (CEA), which limits what participating insurers have to pay in quake damages.

"But Californians are buying less coverage. Since Northridge, participation has fallen by roughly half, to less than 15% of the state's homeowners today. WHILE COST IS PART OF THE REASON, EXPERTS BELIEVE THAT MANY HOMEWONERS ARE COUNTING ON GOVERNMENT HELP IN CASE OF DISASTER." (I added the upper case for emphasis.)

IMO, that's a real problem, because government does tend to bail people out if they don't buy insurance -- BUT, keep in mind, not everybody will get bailed out everytime.

"The average policy written through the authority costs $704 a year, though some customers can spend more than $1,000. Roughly two-thirds of Californians who do buy quake insurance do so through the authority, about 753,000 homeowners."

"GeoVera, which sells few homeowners policies in Californa, chooses to operate outside the system. Although it offers a plan similar to the authority's basic policy, most GeoVera cusotmers buy extra coverage." However, unlike the CEA, they are able to be selective in who they insure. GeoVera says "it rarely turns customers away." "GeoVera's rates, which haven't changed in years, are approved by the state.

IMO, Californians should be required to carry earthquake insurance. The risk would be spread among a greater pool of people, and the cost could be reduced. Instead, over 85% of California homeowners are expecting me (the taxpayer) to pick up the tab for the damage if they should get hit by California's next devastating earthquake.

Barbara