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2023 Policy Option Changes

CEA 2022 Policy ChangesCEA is committed to making earthquake insurance as available, reliable, and affordable as possible. We seek to maintain the financial strength necessary to honor our promises to policyholders when a damaging earthquake occurs.

There are upcoming changes to CEA policy options that will affect our policyholders. The information on this page is intended to help policyholders better understand these changes.

 

When Will These Changes Go Into Effect?

These changes will likely not take effect until at least late 2023.

What will Stay the Same?

Although CEA is changing some of its optional policy limits, it is still offering far more than the minimum required by California state law. The changes are designed to reduce the negative impact on our policyholders, mitigating the need for steep rate increases while maintaining key coverage features.

CEA residential earthquake insurance policies will continue to:

  •  Cover costs to rebuild or repair a home following a damaging earthquake, 
  • Cover the additional living expense costs that will be incurred while the home is uninhabitable, and
  • Offer financial incentives to retrofit older, more vulnerable homes.

CEA policy limits that will not change:

  • CEA will continue to provide coverage for home/rebuilding costs, matching the Coverage A amount on the companion homeowners or other fire insurance policy. (This is identical to the minimum limit required by state law.)
  • CEA will continue to offer options for up to $100,000 of Additional Living Expenses coverage, (also called loss of use) if policyholders incur costs because they have to relocate temporarily due to earthquake damage. There is still no deductible for this coverage. (This exceeds the minimum limit required by state law of $1,500.)
  • CEA will continue to offer a discount of up to 25% for a code-compliant retrofit of a qualifying older home.
  • CEA will continue to offer options for up to $30,000 in coverage for building code upgrades. (This exceeds the minimum limit required by state law of 10,000.)

What Will Change?

In 2023, CEA will emphasize coverage to repair or rebuild a damaged home while providing additional living expenses for the time the homeowner is forced to live elsewhere while the home is being repaired. CEA will de-emphasize ancillary policy options such as personal property (the contents inside the home).

We will also modify the optional coverage we currently offer for breakable items. This will help mitigate the need for larger rate (and premium) increases in the coming years.

Three policy limits/coverages that CEA seeks to modify:
 
  • Personal Property – Coverage C: Maximum limit of insurance reduced from $200,000 to $25,000. (This exceeds the minimum limit required by state law of $5,000.) 
  • Deductible Options: We will retain the 5%, 10%, 15%, 20%, or 25% deductible options for all CEA policies, with two exceptions:
    1. If a home is valued at over one million dollars; and/or
    2. If the home was built before 1980 and is not verified to have been retrofitted.

In both these cases, the lowest available deductible will be 15% (State law only requires a 15% deductible).

Breakable Personal Property and Exterior Masonry Veneer: CEA will eliminate these optional endorsements that provide coverage for these items. (This provision is not required in state law.)  CEA plans, however, in the next edition of its policy forms, to include $500 in new coverage for breakable items of personal property in all policies. though this would not take effect until late 2023, or later, as it requires additional regulatory review and approval from the California Department of Insurance.

Summary of Changes

  Minimum limit required by state law Current CEA Options New Options
Coverage A – Structure Replacement Cost Replacement Cost No Change
Coverage C – Personal Property $5,000 $200,000 maximum $25,000 maximum
Coverage D – Additional Living Expenses $1,500 $100,000 maximum No Change
Mitigation Discount CEA: 5%
All other insurers: None
25% maximum No Change
Deductible 15% 5%, 10%, 15%, 20%, 25% Eliminate 5% and 10% for policies with $1 million+ Coverage A, and pre-1980 non-retrofitted homes
Retain 5%, 10%, 15%, 20%, 25% for all others
Masonry Veneer None Available Eliminate optional endorsement
Breakables None Available Eliminate optional endorsement; seek regulatory approval for $500 sub-limit for all policyholders*

* Following approval by the California Department of Insurance (CDI)

When Will These Changes Affect Me?

If you are one of the policyholders who currently has selected one of the affected policy options, then once the changes have been finalized and an implementation date has been set, you will see your policy option changes at your next policy renewal date.

At this point, you should talk to your insurance agent about the option to modify your existing coverage based on the new choices. You can also use our Premium Calculator to see what works best for your budget. You can also consider coverage from other insurers, including by asking your agent what other earthquake insurance they offer or by looking at other, private insurers.

Why Are These Changes Needed?

CEA relies extensively on reinsurance (essentially insurance for insurance companies) and similar risk transfer tools to offer all the policy options available today while maintaining the current levels of claim-paying capacity. However, several worldwide events have combined to restrict the amount of risk transfer available to CEA, and the cost of the risk transfer that remains has increased significantly.

Extreme weather events driven by climate change (including wildfires, hurricanes, and other windstorms), historically high inflation, the increasing costs of construction, and even the war in Ukraine, combined with CEA’s continued exposure growth, has created unprecedented stress on CEA’s ability to maintain financial strength while avoiding the need for historically large policyholder rate increases. 

In an ongoing effort to promote the best interests of its policyholders, CEA has taken several steps to maintain its financial strength and minimize the need for increasingly steep policyholder rate increases—while maintaining key coverage features focusing on rebuilding the structure of the home with coverage for additional living expenses while that repair work is underway.  

Changing our insurance policy options will help offset unprecedented significant premium increases for CEA policyholders in the future, keeping earthquake insurance more affordable for Californians. Several factors have contributed to the need to make changes:

  • Historic inflation: The cost of reconstructing homes continues to accelerate, now at an annualized rate in excess of 13% according to the California Construction Cost index, driving up the total insured value of all of CEA’s policies. 
  • In addition, due to high levels of inflation, rising reconstruction costs, as well as the increasingly tight reinsurance market, CEA believes that modifying some of the expanded policy limit options it now offers is the best available solution to control costs that are otherwise passed on to its policyholders.
  • CEA does not receive any ongoing state or federal funding (unlike many other public natural catastrophe insurance entities).
  • Without action, CEA policyholders will likely see their premiums significantly increase, perhaps even double, over the next five years.

What Else Should I Know?

  • CEA is a not-for-profit organization and is the largest residential earthquake insurance provider in the United States.
  • State law requires CEA to offer a basic earthquake insurance policy. This includes the same dwelling coverage limit used in a home’s underlying residential insurance policy (the reconstruction cost of a home or mobile home), a standard deductible of 15%, $5,000 in personal property coverage, and $1,500 for additional living expenses.
  • Over time CEA has expanded its policy limits above and beyond the minimum required by law. However, due to high inflation and a tightening reinsurance market, CEA believes that for our policies to remain affordable, it is necessary to amend some of the expanded policy limits it now offers.
  • CEA continues to encourage policyholders who live in older homes to improve their safety and mitigate earthquake losses by completing a seismic retrofit—work that can usually be completed in a couple of days and can lower a CEA premium by as much as 25%.
  • CEA has about 1.1 million policyholders and the financial strength necessary to pay all covered claims that would result from the reoccurrence of a historic earthquake. CEA currently has access to existing capital, reinsurance, and other funding sources, which total about $19 billion to pay claims. So, if the Great 1906 San Francisco Earthquake—one of the most significant earthquakes of all time (per USGS)—or the 1994 Northridge earthquake reoccurred today, CEA would be able to cover all policyholder claims.
  • Affordable earthquake insurance coverage is an important part of California’s economic stability. It is a valuable tool to help minimize the possibility of residents incurring major financial losses and the potential upheaval and trauma that often accompanies it. CEA continues to make every effort to provide coverage that is as affordable as possible while remaining actuarially sound.
  • You can visit StrengthenMyHouse.com to learn how to prevent costly earthquake damage to your home, protect yourself financially, and other steps to prepare for earthquakes.

What if I don’t like these new coverage choices?

Changes to CEA Policy 2022If you have used our Premium Calculator to learn about the choices and their costs, have talked to your agent about your options, and still don’t think CEA has a policy that works for you, you may want to consider looking at coverage available from other earthquake insurance companies. There are insurance companies that offer non-CEA earthquake insurance policies in California that may be more suitable for you and your family.

It never hurts to shop around. Although we’d love to retain your business, what we care most about is that you are protected against earthquake damage and prepared for your future.

Strengthen Your Home

Whatever you decide for your earthquake insurance needs, if you own an older home or a home with earthquake vulnerabilities (such as an unreinforced chimney), we also strongly recommend you consider seismically retrofitting it to make it more resistant to earthquake damage. These projects can sometimes be done in a day or two and are usually pretty inexpensive—especially when compared to the costs of rebuilding a home that has been severely damaged in an earthquake.

CEA policyholders with qualifying older homes that have been properly retrofitted may be eligible for a premium discount of up to 25% on their CEA policy premium.

Learn more about strengthening my home

2023 Coverage Changes FAQs

Q. Why have my policy options changed?

A. CEA works hard to keep rates low and offer a range of insurance policy options. When a damaging earthquake strikes, we want to help you get back on your feet—to rebuild and/or repair your earthquake-damaged home. CEA is a not-for-profit entity which does not receive any state or federal backing. Additionally, the cost of home construction and repairs is increasing in California, the market for reinsurance (insurance for insurance companies) is tightening.

In light of these increased costs and in order to keep your premium costs low, we have made the decision to focus on providing structural coverage for your home, while providing additional living expenses for the time you may be forced to live elsewhere while the home is being repaired. We are deemphasizing ancillary policy options such as personal property (the contents inside the home), breakable items, and decorative masonry veneer.

Q. Can I get a discount or lower my bill?

A. There are different ways to lower your CEA premium:

  • You could be eligible for up to a 25% discount on your CEA policy if you complete a seismic retrofit on your older home. Mobilehomes that are properly retrofitted are also eligible for a premium discount of 21%. Read more information about how to get a premium discount.
  • Choose a higher deductible to lower your premium—CEA deductibles range from 5% to 25%. 
  • You may be able to reduce your costs by declining or reducing personal property and loss of use coverages and only insuring the dwelling (residential structure) itself.
  • Make sure your coverage limits accurately reflect what you own, so you don’t pay for more than you need.
Q. I can’t afford the deductible, what can I do?
A. You do not pay your deductible out of pocket to receive payment on a claim. The deductible is subtracted from your covered damage, so you don’t have to pay any of the deductible up front before you receive your claim payment.
Q. When does this take effect?
A. These changes will likely not take effect until late-2023, so you will see the impact at your policy renewal date. We will proactively communicate these changes to stakeholders (including our policyholders, participating insurers and agents). We encourage you to talk to your agent now to see how the coverage changes may affect you.
Q. Can I buy insurance from other companies?
A. Yes. Many Californians live within 30 miles of an active fault, so the most important thing is that you are protected, whether you choose CEA or not. We believe in promoting greater private market engagement. Our participating residential insurers can market non-CEA insurance to their customers. Also, there are other private insurance companies that offer earthquake insurance policies in California. So, talk to your agent and/or shop around to find the best policy to protect you and your family against earthquake damage.
Q. Do I really need earthquake insurance?
A. Earthquake insurance is not mandatory; however, earthquakes are a certainty in California. A big quake may cause catastrophic damage to your home’s structure and foundation—and may require use of your hard-earned life savings to repair damage to your home. Especially since the cost of construction and repairs in California keeps rising, earthquake insurance coverage can help offset some financially devastating losses.

Calculate Your Earthquake Insurance Premium