California Earthquake Authority - Version 2.0 About Earthquake Insurance

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About Earthquake Insurance
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After 1995 a reduced-coverage, catastrophic earthquake-insurance policy became available, designed to protect a policyholder’s dwelling but excluding coverage for costly non-essential items such as swimming pools, patios, and detached structures.

About Earthquake Insurance

Does My Homeowners Policy Cover Earthquakes?

Most standard homeowners, mobilehome owners, condominium, and renters insurance policies do not cover earthquake damage. Similar to flood insurance, earthquake insurance usually must be purchased separately.

Is My Residential Property Insurance Company Required to Offer Earthquake Insurance?

The law requires insurers that sell residential property insurance in California to offer earthquake coverage to their policyholders. Residential property insurance includes coverage for homeowners, condominium owners, mobilehome owners, and renters. In offering earthquake coverage, insurance companies can become a CEA participating insurance company and offer the CEA’s residential earthquake policies or they can manage the risk themselves. To date, companies that sell over two-thirds of the residential property insurance in the state have opted to become CEA participating companies.

Do I Need Earthquake Insurance?

Many people assume their residential insurance policy fully protects them, but if you look at a typical policy, you will see it does not cover earthquake loss. And government disaster-relief programs are extremely limited—they are designed to help you get partly back on your feet, but not to replace your home and everything you lose. So if an earthquake strikes tomorrow, will you have the financial resources to pay for earthquake damage to your home and its contents?

When you consider your resources, ask yourself how much of your investment in your home you are willing to put at risk. For many California homeowners, their home is their biggest financial asset. Without earthquake insurance, how do you plan to protect that asset from the costs of earthquake damage? If you have a typical home loan and deed of trust, did you know you remain responsible for the loan balance even if your home is damaged or destroyed by an earthquake?

Consider taking these basic steps as part of good planning and preparation: Research the earthquake hazard in your area. Secure the contents of your home to reduce the likelihood of damage and injury. Investigate how well your dwelling is designed and constructed to resist damage from earthquake motion—retrofit the structure if necessary. Analyze your finances and develop a financial-recovery plan in case an earthquake damages or destroys your home or its contents.

There is good information available to help you. But only you can decide if earthquake insurance is right for you.

What is Meant by a “Mini-policy”?

In 1996, by act of the California Legislature, a reduced-coverage, catastrophic earthquake-insurance policy became available. This so-called earthquake "mini-policy" is intended to protect a policyholder’s dwelling—to provide a "roof over your head"—while excluding coverage for costly non-essential items such as swimming pools, patios, and detached structures. The base CEA policy is based on and authorized under the mini-policy law. Such policies are intended to help the policyholder avoid catastrophic loss while keeping premiums more affordable for more consumers.

What Are My Earthquake Risks?

No part of California is "immune" from earthquakes—in other words, there is no “low-risk” area in California for Earthquakes—there are only areas of lower or higher risk.

In general terms, your home’s risk level depends on where you live in relation to earthquake faults, the age and type of dwelling you live in, and the soil types where you live.

Some parts of California that have not experienced earthquakes for 200 years or more might be more susceptible to earthquakes than areas that have experienced recent earthquakes. Why? Earthquake faults build up tension over long periods of time; what we experience as an earthquake occurs when that tension is suddenly released. It is theorized that relatively recent earthquake activity means that faults have released built-up tension—a lack of earthquake activity can mean that tension is still building and could be released at any time as an earthquake.

Does the California Earthquake Authority (CEA) restrict buying/selling earthquake insurance after an earthquake?

The CEA does not restrict buying/selling CEA insurance products after an earthquake. It is possible, however, that after an earthquake CEA participating insurers may restrict writing of their residential-property-insurance products (e.g., dwelling fire, mobilehome, renters, or condominium-unit owners).

Under California insurance regulations, applicants who wish to purchase CEA earthquake coverage must have a residential property insurance policy in effect from a CEA participating insurer.
• If an applicant is unable to purchase a residential-property-insurance policy from a CEA participating insurer because that insurer has imposed a restriction, the applicant may be unable to purchase CEA coverage.
• Current residential-property-insurance policyholders of a CEA participating insurer, on the other hand, may purchase a CEA policy at any time.

After a recent earthquake, I purchased a California Earthquake Authority (CEA) policy and received a notice entitled “Information for Purchasers of New California Earthquake Authority Policies.” How does the notice affect me?

It is important for you to know that certain earthquakes are not covered under your CEA earthquake policy: (1) earthquakes that occurred before the effective date of your policy and (2) earthquakes that are described in the notice entitled, “Information for Purchasers of New California Earthquake Authority Policies.”

Please read the notice—and your policy—carefully: The notice provides you with information on a recent earthquake that has an impact on the effective date of your earthquake-insurance coverage for the 360 hours following the earthquake.

How Much Earthquake Insurance Should I Have?

Like the basic question of whether earthquake insurance is right for you, how much coverage is right for you depends on your individual circumstances. The following questions may help you decide:

Can you afford to replace your household possessions (such as sofas, beds, TVs, furniture, refrigerators, and clothing) if they were destroyed in an earthquake? How much would they cost?
If you have to find temporary accommodations because you cannot live in your home as the result of an earthquake, how much will you need to pay for those additional living expenses?
If you own your home, how much home equity do you have? Can you afford to risk losing that equity if an earthquake damages or destroys the home?
How much would it cost to rebuild your home? Do you have assets available to repair or even rebuild your home after an earthquake?
Do you have a mortgage, second mortgage, or line of credit on your home? Can you afford to continue repaying those loans while also paying to rebuild or replace your home?

Keep in mind that the insured value of your dwelling for your earthquake policy is the same as the amount of coverage specified in your homeowners insurance policy. If you are underinsured on your homeowners policy, you are underinsured on your earthquake policy, too.

Won’t the Government Be There to Help Me?

The federal Department of Homeland Security’s Federal Emergency Management Agency (FEMA) and the Governor’s Office of Emergency Services (OES) in California respond to, plan for, and help mitigate effects of disasters. Government disaster-relief programs are designed to help you get partly back on your feet but not to replace your home and everything you lose.

The primary form of federal disaster relief is the low-interest loan—as a loan, it must be repaid. Because it is a loan that must be repaid, some people do not qualify for the loan. FEMA grants for post-disaster emergency home repairs and temporary rent assistance are only available to individuals and households who do not qualify for loans.

In addition to creating a plan to take care of your family for immediately after an earthquake, you should also develop a family plan for long-term financial recovery.

How Can I Purchase CEA Earthquake Insurance?

CEA earthquake insurance policies are sold only through CEA participating insurance companies. You can buy CEA coverage only through the insurance company that provides your residential property insurance and only if that company is a CEA participating insurance company. Participating insurance companies process all CEA policy applications, policy renewals, invoices, and payments and handle all CEA claims.

To establish a new CEA policy, to make changes to an existing CEA policy, to ask questions about your CEA coverage, or to request a copy of your CEA policy, please contact your insurance agent or participating insurance company. To obtain CEA coverage, you must first have a companion residential insurance policy written through a CEA participating insurance company.

What is Loss Assessment?

In condominium communities, the exterior of buildings, certain building components and common areas are typically owned by all the condominium owners as a group. In the event of earthquake damage to such property, the association may, in accordance with its bylaws, impose an assessment against all members of the association to pay for exterior or structural repairs.

This coverage is unique to condominium owners, in that if damage from an earthquake occurs and the losses are not fully covered by the association’s master insurance policy, Loss Assessment coverage will help you pay for your share of certain assessments the association may impose on all property owners in your condominium development.

A partial list of assessments not covered are those made to pay for the repair of non-residential structures, awnings, patio coverings, pools, spas, club houses, artistic features, or separate parking structures.

Why have the premiums for Loss Assessment changed over time?

Today, an increasing number of condominium homeowner associations are either buying earthquake coverage with high deductibles or electing not to purchase earthquake insurance at all.

As a result, there is a greater likelihood that homeowner associations will use unit owner assessments to repair damage following an earthquake. This results in an increased probability of loss under a CEA policy with loss assessment coverage—requiring the CEA to adjust premiums for this coverage over time. Doing so ensures that the premiums the CEA does charge are commensurate with the increased probability of loss as the number of CEA policyholders who purchase loss assessment coverage continue to grow.