CEA Could Pay up to $7B in Earthquake Claims

The California Earthquake Authority (CEA) potentially could pay up to $7 billion in policyholders’ claims if a massive magnitude 7.8 earthquake occurred on the southern San Andreas Fault — the scenario presented in the Great Southern California ShakeOut earthquake drill planned for Nov. 13. People with damaged homes but without earthquake insurance would have limited government relief options and could face financial devastation.

Although the CEA has about 535,000 policyholders in the scenario area, it’s likely half would sustain significant damage.

The quake simulated in the ShakeOut is about 5,000 times the size of the recent Chino Hills quake and close to the same magnitude as the recent earthquake in China. Its aftershocks would be felt more strongly and over a wider area than those that followed the 1994 Northridge earthquake.

86% in region without earthquake coverage

“We remain concerned about the high percentage of residential policyholders who do not have earthquake insurance,” said California Insurance Commissioner Steve Poizner, a member of the CEA Governing Board. “About 86 percent of residential policyholders in the region without additional earthquake coverage remain vulnerable to financial devastation not if, but when the Big One strikes.”

In the ShakeOut area, which includes Los Angeles, Orange, Riverside, San Bernardino, San Diego, Imperial and Kern counties, earthquake insurance costs vary depending on the structure’s age, type and location, but monthly costs typically are less than automobile insurance. Earthquake insurance on a one-story house built in 1996 and with a $350,000 replacement value, for example, would cost $37 per month in Anaheim, $53 in Woodland Hills, $54 in Riverside, $87 in San Bernardino and $12 in San Diego. (See attachment for additional examples.) People also can get price estimates on individual earthquake policies by talking to their insurance agents or using the premium calculator on the CEA Web site at www.EarthquakeAuthority.com.

Government loan and grant programs are limited

If a home is in an area declared a disaster by the president of the United States, residents may qualify for grants from the Federal Emergency Management Agency (FEMA) or low-interest loans from the Small Business Administration (SBA).

Government funding limited for most structure costs

The FEMA Individuals and Households Program has granted, as of 2007, no more than $28,800, with a limit of $5,000 to be used for structure repairs (www.fema.gov). The SBA makes low-interest loans to individuals, with current limits of up to $200,000 for structure repairs and up to $40,000 to replace personal property (www.sba.gov). Residential policyholders with earthquake insurance also can qualify for these federal programs under certain conditions.

The CEA, through private insurers, provides earthquake insurance to renters and owners of condominiums, apartments, mobile homes and single-family houses. The CEA is a sponsor of the Great Southern California ShakeOut, the drill that will occur Thursday, Nov. 13, at 10 a.m.