Learn Why Your CEA Earthquake Insurance Premium May Have Changed

CEA is required by law to establish rates that are actuarially sound and based on the best available science.

The not-for-profit CEA has a history of reducing rates whenever possible and we have done so five times during our 25-year history. Since our establishment in 1996, we have been able to lower rates on CEA homeowners policies overall by almost 50 percent. However, there are occasions when we are required to increase our rates in order for those rates to remain actuarially sound as required below.

To change rates—whether an increase or decrease—CEA is required make an application to the California Department of Insurance (CDI) for a new rate plan. That new rate plan cannot be implemented until and unless the CDI carefully analyzes those rates and ultimately approves them. This page describes current rate changes.

Rate Changes To Ensure Financial Strength

By state law, CEA is required to establish rates that are actuarially sound, i.e., that we collect enough premium to cover expected costs, thereby maintaining the necessary financial strength to meet our promises to our policyholders.

To have the necessary financial strength to insure all our policyholders, CEA builds claim-paying capacity from many sources, which includes purchasing reinsurance (insurance for insurance companies) and other sources of financial risk transfer.

Due to the exposure growth of CEA (both the number of policyholders and the cost to reconstruct the homes of existing policyholders) over the last few years, CEA has increased the amount of reinsurance it purchases to maintain the necessary financial strength. Additionally, due in part to major catastrophes around the world, the price for each dollar of catastrophe reinsurance purchased has been rising. The combination—needing more reinsurance dollars and increasing prices per dollar—has put upward pressure on CEA rates.

CEA does not receive any state or federal backing (unlike many other government-related natural catastrophe insurance entities); so, we must pass on these cost increases directly to our policyholders in the form of a slight rate increase.

In September 2021, CEA received approval from the CDI for a slight rate increase effective April 1, 2022.

What Do CEA’s Latest Rate Changes Look Like?

The CDI-approved rate increase of 2.9% took effect starting April 1, 2022. Although the actual dollar increase will vary from policy to policy, the average annual dollar impact will be an increase in premium of $1 for a renters policy, $12 for a condo-unit owners policy, $4 for a mobilehome owners policy, and $26 for a homeowners policy.

And, if the reconstruction cost of your house has increased (as indicated by the insured value on your residential policy), your CEA earthquake insurance premium will also increase to reflect that you have higher coverage limits.

Additionally, the CDI approved a CEA rate and form filing in 2018 that went into effect July 1, 2019, directing CEA to phase-in the new rates over three consecutive years, on:

  • July 1, 2019

  • July 1, 2020
  • July 1, 2021

While the overall effect of the approved 2018 rate and form filing is a statewide average overall decrease of 1.7%, and while most policyholders saw an overall rate decrease, some policyholders’ rates increased—for the rate change starting July 1, 2021, about 15% of policyholders saw or will see their premium increase. These changes were made to reflect a change in the U.S. Geological Survey (USGS) assessment of earthquake hazard.

Because policies renew throughout the year, some policyholders who were affected by the rate change starting July 1, 2021, will not see their premium change until the first half of 2022. These policyholders may see the combined effect of both approved rate changes, i.e., the last year of the approved 2018 rate and form filing and the newly-approved 2022 rates.

For these policyholders, their premiums may be significantly more than they were previously.

Why Are CEA Policyholders Experiencing A Premium Increase?

If your premium changed, it is due to one or more of the following factors:

  • A slight overall rate increase of 2.9%, to ensure CEA rates remain actuarially sound. This increase applies to all existing CEA policies upon renewal.
  • The final year of a three-year implementation, which was made to reflect a change in the USGS assessment of earthquake hazard which showed increased earthquake risk in certain locations. Increases associated with this change affect about 15% of CEA policies.
  • Increases in the reconstruction cost of your house (as reflected by the insured value on your residential policy). Given that reconstruction costs have risen significantly in California in recent years, this will affect most CEA policies.

What Can I Do To Reduce My Premium?

Check with your insurance agent to see if these strategies to lower your CEA earthquake insurance premium are appropriate for you:
  • Consider strengthening your older house that was not built to current seismic building codes to receive a premium discount of up to 25% from CEA—although this does cost money up front, in the long term it makes your house safer and strengthens it against damaging earthquakes.
  • For mobilehome owners, consider installing an earthquake resistant bracing system (ERBS). Mobilehomes with an approved ERBS qualify for a discount of 21%.
  • Choose a higher deductible (up to 25%) to pay a lower yearly premium cost.
  • Adjust the amount of coverage you buy:
    • Reevaluate your coverage limit for coverages like personal property, in case it is higher than the value of your items.
    • Select Homeowners Choice, which allows you to separate your coverages, or just cover the dwelling itself, which will keep your premium cost down.
  • Use our free Premium Calculator tool to run through the flexible coverage and deductible options, to see how changes in coverage and retrofit discounts can affect your premium cost.

If none of these options fit your needs, you may wish to consider other insurers that offer earthquake insurance policies. It never hurts to shop around. What we care most about is that you are protected against earthquake damage and prepared for your future.

Our Background: CEA Is A Not-For-Profit Enterprise

When the California Legislature created the not-for-profit CEA in the wake of the devastating Northridge earthquake, legislators mandated that:
  • We are:
    • Publicly managed by a governing board, which includes the Governor, Treasurer and Insurance Commissioner.
    • Privately financed
      • In part by our participating residential insurers when they join our organization, whose agents sell and service our policies, and
      • Most importantly, by premiums we receive from our policyholders. This creates a firm commitment for us to be careful stewards of our policyholder funds—we ensure pricing is fair to all policyholders and is tied to your specific earthquake risk.
  • We offer residential earthquake insurance to Californians.
  • Our rates are actuarially sound.
  • We use the best available scientific information to set our rates.
    • We receive detailed earthquake risk and forecast information from sources that include the Working Group on California Earthquake Probabilities and multiple catastrophe modelers. The newest data shows an increase in the risk of larger damaging earthquakes, along with quakes having the ability to “jump” faults to cause multifault ruptures due to a vast, interconnected fault system. Our rates must reflect this increased risk exposure.
  • CEA rates and rate changes are reviewed and approved.
These requirements allow us to remain financially strong. We could cover all claims if the 1906 San Francisco1989 Loma Prieta, or 1994 Northridge earthquake reoccurred today.


Premium Changes FAQs

Q. What does it mean when you say CEA uses “best available science” to set policyholder rates?
A. When the legislature established CEA 25 years ago, it established a requirement that CEA use “best available science” for rate setting purposes.
Q. What sources does CEA rely on to determine best available science?
A. Although not specifically identified by statute, we have historically relied on the United States Geological Survey (USGS) as the state-of-the-art expert regarding earthquake science.
Q. Has CEA ever re-examined its reliance on USGS as the exclusive voice of the scientific community?

A. Yes. In the fall of 2021, CEA established a Best Available Science Committee (BASC) to investigate recently published research, identifying elements of previous USGS reports that deserve further attention. The committee conducted 13 interviews with leading scientists and researchers, as well as with representatives of the three commercial modeling companies: CoreLogic, RMS, and AIR.<.p>

BASC has not identified any short-term or immediate modifications that should be made to CEA’s current view of risk but will be working with California Geological Survey (CGS) and USGS to enhance CEA’s participation in the development and validation of future USGS models.

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