Earlier this week Northern California was struck by an earthquake which measured at least 5.7 on the Richter scale. The quake was located in a somewhat remote area of California, but there was still damage to homes in the area due to the shaking.
The occurrence of this earthquake once again leads me back to a problem which I have written about previously. That problem deals with the financial havoc that could possible strike this state if a very large earthquake should occur along the San Andreas Fault line damaging large metropolitan areas. It is my belief the California Earthquake Authority will not have the financial strength to cope with “the big one.”
The title of this article is Enough money for “the big one”. I only need refer to the financial accounting from the 1994 Northridge earthquake which was localized in regards to the worst damage. The final cost according to the Unites States Geological Survey was between $25 billion and $40 billion dollars; please note we are dealing with 1994 dollars here. The cost for the same type of earthquake in 2013 would be appreciably more; the Federal Reserve’s Consumer Price Index indicates that $100 for labor and materials in 1994 would now cost $157.33 in 2013, almost a 63% increase.
In 2012 the California Earthquake Authority stated their claims paying ability was at $9.5 billion, if a large quake strike such as the Northridge quake, someone will come up on the short end of the stick and in the event of a major catastrophe that someone will be you and me. The California Earthquake Authority has the capacity to handle the 5.7 type of earthquake, and somewhat larger ones if they should strike San Diego, Los Angeles or San Francisco, but my mind goes to the recent 8.0 type quakes that struck in Chile and I can only wonder at what will happen in California if one such as that strikes us.
The only answer to this problem that I can see is that the California Insurance Commissioner needs to make it plain that if the large insurance carriers want to continue to sell their policies here, they will need to assume the risk of earthquake damage and not pass that risk on to the California Earthquake Authority, tax payers of this state and country which will be the ones called on to pick up the pieces.
The California Earthquake Authority came into being as a result of the 1994 Northridge Earthquake when the major carriers in this state approached our state authorities and indicated they would leave California if something was not done to assure them they would not be stuck with such a large repair bill again. The State of California responded with the Earthquake Authority.
The problem is that you simply cannot expect one agency in California to have the same financial strength of dozens of other carriers selling policies and making money not only in California but in the rest of the country as well.
If insurance companies want to continue to profit in this state, they need to offer the same type of policies they did pre-Northridge quake. The California Earthquake Authority can then offer the Earthquake deductible policy which will provide coverage for the huge deductibles companies will charge on the earthquake coverage and we will all stand a better chance of recovery should the “big one” ever strike.