With all the talk surrounding the recent anniversary of the 1906 San Francisco earthquake, the Personal Risk Management Group of Equity Risk Partners would like to share a few facts and figures about earthquake coverage, its availability, and pricing.

In addition to the Great Earthquake of 1906, most of you are familiar with the 1989 Loma Prieta and the 1994 Northridge earthquakes and the effects they had on the insurance market. According to the California Department of Insurance, the Northridge earthquake caused more than $12.5 billion in damages. Due to the resulting “lack of availability” of earthquake insurance following the quake, it became mandatory for companies writing homeowners insurance in California to offer earthquake insurance as well. It is important to note that the California Insurance Code (CIC) - Section 10081 - mandates that carriers writing homeowners insurance in California must offer earthquake insurance and the offer must:

• Be made in writing
• Describe coverage amounts
• List the deductible offered
• State the policy premium

Insureds have 30 days from the date of mailing from the insurance company to accept the offer of earthquake coverage. If your homeowners insurance company does not receive a response from you, then they consider the offer rejected. Your insurance company is only required to make the offer of earthquake coverage every other year. The law prohibits an insurer from canceling, rejecting, or refusing to renew a residential property policy solely because the policyholder has accepted the offer of earthquake coverage.

Not all polices and coverage forms are standard. Some carriers only offer a “slimmed-down” version, commonly referred to as a mini-policy. Some carriers offer a mid-range version and some have broad forms with high limits. As you might expect, carriers usually reserve their broadest policy forms and highest limits for those homes furthest from active fault lines and only offer those mini policies for homes closer to fault lines.

It takes a good broker to negotiate on your behalf for a lower deductible, broader coverage terms and/or higher limits. A good broker knows the marketplace and can search out alternatives, pricing and limits that best suit your needs.

It is not a coincidence that Katrina, Wilma, and other hurricanes had a major impact on insurance carriers and their rates in other lines of insurance. Although the commercial property side of the business is experiencing a great increase in premium prices, it may not have much of an effect on the earthquake insurance prices in California. Some of our leading personal lines carriers indicate that the July 1, 2006 new reinsurance treaties will have little, if any, impact on your personal earthquake insurance program.

Would you believe only 16% of California homeowners buy earthquake insurance? Our internal ratio is much higher as we work very hard to counsel our clients as to the necessity of this coverage, as well as to find them the best terms, conditions, and pricing. The standard refrain echoed by the 84% of homeowners without the coverage is the expectation that FEMA and/or the federal government will “bail us out” in the event of a significant earthquake loss. The reality could not be further from that expectation. FEMA is meant to help you with critical expenses that cannot be covered in other ways. Please remember that FEMA’s assistance is not intended to restore your damaged property to its condition before the disaster. While limited funds may be available through FEMA, it is in the form of loans administered by the Small Business Administration at 2 – 3% interest.

Personal Risk Management was developed by Equity Risk Partners to serve the needs of private equity professionals, portfolio company executives, and high net worth individuals. We look forward to having an opportunity to exceed your expectations for earthquake insurance, as well as our entire line of personal risk management, life insurance, and disability products. Please feel free to contact Judith Acevedo at (415) 874-7100 or jacevedo@equityrisk.com