My years working for a broker specializing in Earthquake Insurance has made me realized, not enough people think through the possibility of the potential damages in the event of an earthquake.
Although earthquake insurance premium is sometimes expensive, if a homeowner has placed a lot of weight into his home equity for retirement or a buyer putting down a very large down payment, would the transfer of risk (earthquake) be on of the top items on their minds? Most homeowners think their homeowners insurance policy will protect everything, but keep in mind, when presented the policy by their agent, they have the OPTION to buy earthquake. Does the agent explain it completely?
The CEA (California Earthquake Authority) is the major player in the earthquake insurance market. In fact, they hold almost 85% market share!
Given this fact, most people are buying this policy where their primary insurance company participates with the CEA without truly understanding this disclosure.
There's a policy disclosure that is contained in the policy:
"California earthquake authority policy disclosure this policy is being purchased from the
"CEA." the coverage in this CEA policy substantially differs from the coverages provided in your homeowner's policy. The CEA is not part of or associated with your homeowner's
insurance company. if losses as a result of an earthquake or a series of earthquakes exceed the available resources of the CEA, this policy is not covered by the California insurance guaranty association. therefore, the the California insurance guaranty association will not pay your claims or protect your assets if the CEA becomes insolvent and is unable to make payments as promised. in addition, your CEA policy maybe subject to future surcharges of the policy premium in certain cases where an earthquake or series
of earthquakes has exceeded available resources to pay claims, in that case, this means that in addition to the annual premium, you may be charged up to an additional 20% of the premium."
According to CEA’s policy disclosure, if losses from an earthquake exceed the
available resources of the CEA, this policy is not covered by the California
Insurance Guaranty Association. Therefore, the California Insurance Guaranty
Association will not pay the policy holders’ claims or protect their assets if
the CEA becomes insolvent and is unable to make payments as promised. Also, CEA
has the right to subject policy holders to additional charges of up to 20
percent of the premium if an earthquake or series of earthquakes have exceeded
the CEA’s available financial resources. This means that homeowners may pay more
premiums than their original quote had stated.
It is my stance that the CEA should be required to explain why a
homeowner should pay a premium for a policy that has a good chance of never
paying off when a catastrophe hits or why it is appropriate to charge customers
more than the agreed upon sum. It was also recently discovered that the CEA is
an insurance program run publicly and is not an actual insurance company.
It is better for homeowners to get quotes from insurance companies that
participate in the California Guaranty Association and guarantee to pay claims
up to $500,000 in the event the insurance company becomes insolvent.
It would be beneficial for homeowners to obtain quotes
from companies that have backing from the California Guaranty Association by
insurance companies. Please feel free to contact me with any questions or to get a quote for a more comprehensive plan (and most likely beat CEA's rates).