California Insurers Reduce Earthquake Insurance Rates

In November, 2012, the California Department of Insurance made an important announcement regarding the state’s two largest earthquake insurance companies, CHUBB and Chartis.

In the announcement, California Insurance Commissioner Dave Jones said that he had approved reductions in the rates of both insurers. Specifically, Chartis agreed to reduce its rates by 15%, which represents a savings for consumers of roughly $15 million, or an average annual premium that will drop from $7,292 to $6,061.

Similarly, CHUBB will be lowering its rates by 15.46 percent, which represents an average annual premium drop from $5,940 to $5,021.

Why are these reductions in order? The model used to develop earthquake insurance rates has recently been updated and now shows reduced damage estimates. As a result of this new information, the California Department of Insurance sent letters to earthquake insurance carriers operating in the state asking them to either substantiate their existing rate tables or decrease their rates.

Earlier this year, California’s largest writer of earthquake policies, the California Earthquake Authority, made a rate decrease of 12.5 percent.

Despite Commissioner Jones’s reminded that California is “earthquake country,” and thus homeowners are in real danger of quake-induced damage, only twelve percent of homeowners there actually have earthquake insurance. Jones has been adamant about educating residents of the state, stressing the importance of protecting the home, which is most people’s greatest asset. He also reminds people that retrofitting houses to bring them up to current code is often less costly and just as important as relying on insurance to pay for eventual reconstruction.

Earthquake rates are not based solely on estimated damage assessments. Other factors include the age of a home and the distance to the nearest fault line, as well as the results of seismic and soil studies.

Homeowners insurers operating in California are required by law to send offers of earthquake coverage to homeowners every other year, along with policy renewal notices.