Californians can purchases residential earthquake insurance through the California Earthquake Authority (CEA). There are four groups that are eligible: homeowners, renters, condo owners and mobile-home owners. In addition to premises, the insurance will cover contents and some additional items.
In 1994, the unexpected Northridge earthquake near Los Angeles left residential insurance companies unprepared for the cost of damage claims. Within months, many residential insurance companies were refusing to offer any insurance to homeowners or if they did it was very expensive. The housing market was in jeopardy. In response, the California legislature approved the CEA. It is a not-for-profit state entity but receives no state funding. It acts like an underwriter for the participating insurance companies. The cost for earthquake insurance for a 2,500 sq.ft. home in Santa Monica is approximately $2,500 per year with a 5% deductible on the replacement value of the home. So far, the CEA most notable achievement is that it stabilized the housing market in California. It hasn't has any significant claims by insurance policy holders since its formation so it remains to be determined how it will perform if there is a significant earthquake. The CEA offers homeowners with older homes discounts on their insurance when they take hazard reduction initiatives like installing cripple walls or when they bolt their house to its foundation.
Because earthquake insurance is not mandatory, even in high-risk areas, many observers believe that the entire economy of California and the United States is at risk from a destructive earthquake. The CEA has nearly $20 billion dollars in its insurance pool but if a 7/8 or 9.0 magnitude earthquake happened in a densely populated part of the state, the cost could rise to one trillion dollars in uninsured expenses. This doesn't mean that CEA would fail; it presumably has enough in its insurance fund to cover all of its claims based on the estimated value of the assets insured. The concern is that CEA is only a small solution to a bigger problem and one that only covers residential homeowners most of whom are well off enough to afford earthquake insurance.
In order to spread that risk out the California legislature and the two U.S. Senators from California have tried to get the Federal Emergency Management Agency (FEMA) to offer mandatory earthquake insurance and dilute the amount of risk the sate of California face in the case of a catastrophic earthquake. They point out that FEMA already has a similar program for floods and requires mandatory flood insurance in flood prone areas of the United States.
Diarmuid D. O'Dea