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Garamendi Faults Quake Insurance Plan, Asks Delay

TIMES STAFF WRITER

Insurance Commissioner John Garamendi asked state legislators Wednesday to stall implementation of California’s low-cost earthquake insurance program--designed to provide minimum earthquake coverage to all homeowners--until next year.

The insurance plan, which was to go into effect July 1, is so flawed that it could fall apart in the face of a large quake, Garamendi told the Senate subcommittee on earthquake insurance.

“Current studies indicate (the plan) is under-funded and unsound,” Garamendi said in an interview after his presentation to the Senate.

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If a large earthquake occurs in the first few years of the program, the state will run out of money to pay policyholders, he said.

“We would be forced to pay only a portion of the loss because we would not have enough money to cover the whole loss,” Garamendi said.

Garamendi believes that premiums will have to be higher than the $12 to $60 annual rates anticipated when the Legislature passed Senate Bill 2902, establishing the California Residential Earthquake Recovery Fund. Policy deductibles may also need to be hiked, he said.

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The Legislature originally set coverage limits of $15,000 per household with deductibles of $1,000 to $3,500. (Premiums and deductibles depend on the value of the home.) Homeowners wanting more coverage would need to buy it from private insurers.

The program, once touted as an inexpensive way to defray the serious financial burdens residents face after a quake, was approved by the Legislature after the 1989 Loma Prieta earthquake, which left many Northern California homeowners with devastating, uninsured losses.

At that time, legislators determined that premiums charged by private insurers were so high that many of the state’s residents opted to go without. The state earthquake fund was set up to alleviate that problem.

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Garamendi believes that premiums for the state fund may have to average $90 annually. But more study is needed before rates are set in stone, he said.

California regulators are not ready to administer the program, Garamendi also said. No workers have been hired, and no system has been set up to collect premiums.

Garamendi asked for immediate legislation to delay implementation of the mandatory insurance program until next January so that the state can work out the troubles.

“If they don’t extend the implementation date, we will just do it and have day-and-night prayer sessions” hoping that it will work, Garamendi said. But he added, “If there is an earthquake (soon), this whole thing is in a world of trouble.”

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