Can’t Wait for a Federal Answer : State, industry must face insurance problem

The decision by 20th Century Industries to begin immediately phasing out its homeowners and earthquake insurance business does not signal a crisis in insurance availability, but it does point up the possibility of a shortage in coverage for homeowners, especially in Southern California.

Within three years, the state’s eighth-largest insurer plans to stop offering its clients homeowners coverage. Effective immediately, it will write no new policies. At the same time, under a special exemption granted by Insurance Commissioner John Garamendi, the company will stop offering its policyholders quake coverage, beginning with policies up for renewal from July 23 on. The exemption was necessary because companies that sell homeowners coverage must offer earthquake insurance as well.

More than 240,000 owners of houses and condominiums are insured with 20th Century. About 90,000 carry earthquake insurance, and about 25,000 of these live in the San Fernando Valley. Like nearly every other large insurer 20th Century was hit hard by quake-related claims, with its losses reaching about $600 million. That exposure wiped out two-thirds of the company’s surplus and might leave it facing bankruptcy if another large quake were to occur. 20th Century will stay in the automobile insurance business, but even with newly granted rate increases it says it can’t afford to continue its homeowner operations.

The trouble is that other insurance companies aren’t falling all over themselves right now to sign up 20th Century’s customers. In fact, State Farm Insurance Co., California’s largest insurer, has frozen most sales of new homeowners policies. Other big insurers are considering similar action. With more than $6 billion in insured quake losses, some insurers are skittish about increasing or in some cases even maintaining their exposure in California.

The long-term response to the threat of possible catastrophic losses has to be a national program to insure against natural disasters of all kinds--floods, quakes, hurricanes and the like. Legislation to provide for such coverage has been introduced but has not progressed in Congress. For California specifically, the immediate response has to be effective actions to make sure that all homeowners who want earthquake coverage are able to find it, at a reasonable cost. If homeowners and earthquake insurance sales are restricted, the housing market would inevitably suffer and the state’s troubled economy along with it. Here clearly is a problem that demands top-priority attention from the insurance industry and from those in Sacramento who are charged with safeguarding the interests of the industry’s clients.