California Could Be Better Prepared for a Major Earthquake

California lawmakers took decisive action to create the California Earthquake Authority after the private market severely contracted following the Northridge Earthquake in 1994 which caused $16.6 billion in claims – more than total earthquake premiums insurers collected in the 30 prior years. Fortunately, homeowners can today purchase coverage from the California Earthquake Authority (CEA) to help protect themselves from some of the financial consequences of an earthquake.

However, only 14% of homeowners in California carry earthquake insurance today. This low rate may be due in part to the false assumption by many homeowners that the federal government will pay rebuilding costs for uninsured homes damaged in an earthquake. The federal government, through the Federal Emergency Management Agency, will provide low-interest loans to disaster victims, but these are only loans and must be re-paid along with any mortgages and other encumbrances on the home. Some Americans resent the fact that their tax dollars are being used to help homeowners who knowingly live on an earthquake fault and don’t protect themselves with insurance.

The CEA provides vital coverage for homeowners to purchase to protect their homes from earthquakes. If the Northridge Earthquake occurred today, the CEA could pay the claims of those people who purchased earthquake policies. Yet, despite the size of the CEA – the world’s largest earthquake insurer with 730,000 policies in force – it may not be enough to cover its policyholders for the Big One that most experts say will inevitably strike in California.

In the case of such a mega-catastrophe, California will undoubtedly turn to the federal government for assistance. Rather than waiting for a crisis and reacting to an emergency, ProtectingCalifornia.org believes lawmakers should make it a top priority to create a comprehensive, integrated solution NOW. If a mega-catastrophe were to hit California, a national financial backstop would be part of a proactive solution to provide the needed additional protection for California earthquake policyholders.

Learn more details regarding a comprehensive, integrated solution, including strengthening first responders, preventing and mitigating problems through stronger building codes and consumer education, and advocating for a financial backstop.

California, and all of America, needs a better plan to better prepare and protect itself from catastrophe.