Quake Insurance Accord Is Thought to Be Near

Proponents of a compromise state earthquake insurance bill say most of the big companies have accepted pro-consumer amendments by Senate Democratic Leader Bill Lockyer of Hayward.

But at the same time, legislative staff and lobbyists trying to fashion the bill reported that one big seller, the Farmers Group of Companies, was balking at the amendments. Moreover, they added that the willingness of Assembly Republican leaders to go along with the compromise remained in doubt.

On July 11, the Democratic-controlled Senate failed to provide a required two-thirds vote for the bill--which would establish a state earthquake insurance authority--after the Republican-controlled Assembly approved it the day before.

If the bill does not pass by the time the Legislature adjourns at the end of the month, it will probably be dead for the year.

Farmers lobbyist Tracy Sandin said Friday that it was incorrect to call Farmers a holdout blocking a compromise.

But, Sandin acknowledged, “we are in the process of evaluating” two Lockyer amendments accepted by the two other biggest sellers, State Farm and Allstate.

One of those would even out rate disparities that would otherwise result in 60% higher premiums for homeowners in the Bay Area than those in Los Angeles.

The other would keep insurers on the hook, obligated to help pay claims against the new authority, for 12 years rather than 10.

Sandin said that under this provision, Farmers could remain obligated to pay up to $840 million to the authority until the end of 2008. By comparison, State Farm, with a larger market share, would be obligated to pay up to $1.5 billion.

The insurer commitments are necessary to give the proposed authority the resources to pay claims for earthquakes that occur during its first years, when accumulated policyholder premiums would be low.

The insurers have been ready to contribute something because the authority would greatly reduce their overall liability for future quake losses. But at the same time, they have been hoping that their obligations to pay the authority for losses would end in 10 years, not 12.

The progress toward resolving these issues indicates that a compromise that would get the measure through the Senate is very close, Sacramento officials said Friday.

But they also reported that the stalemate with Farmers has lasted several days and that the willingness of the Republicans in the Assembly to go along with the amendments remains in question.

A spokesman for Assembly Speaker Curt Pringle (R-Garden Grove) said later, however, that Republicans in the lower house may reluctantly accept a compromise in the interest of resolving the matter.

The spokesman, John Nelson, called extending the insurer obligations to 12 years “fairly doable” and said that under certain circumstances, regional rates might be adjusted.

Meanwhile, a spokesman for Republican Insurance Commissioner Chuck Quackenbush said he would accept a 12-year insurer commitment to the authority if the companies agreed.

However, the spokesman, Richard Wiebe, said Quackenbush has not agreed to make rate adjustments between Los Angeles and the Bay Area and will defer judgment on the rates until after the enactment of the earthquake authority legislation.

Another provision of the bill would require that companies representing 70% of the market share in earthquake insurance agree to participate in the state authority in order for it to take effect.

Since a number of small sellers have already said they will not participate, and the Farmers group has a relatively sizable 13% market share, Farmers resistance could conceivably doom the authority by preventing reaching the 70% threshold.