Relatively few homeowners who sustained damage in the Napa earthquake will have their losses covered by earthquake insurance.
Only 5 percent of homeowners in the area had quake insurance, versus about 10 percent statewide, according to Glenn Pomeroy, chief executive of the California Earthquake Authority, a state-run insurer that dominates the market.
Based on a very early estimate, he said about 15,000 of the CEA's 856,000 policyholders felt moderate to strong shaking, and of those, maybe 1,500 felt shaking significant enough to file a claim. However, he had no idea how many of those had damage that would exceed their deductible, which is 10 to 15 percent of the dwelling coverage.
Brooke Dunton, owner of Wine Valley Insurance Services, an independent broker in Napa, said less than 3 percent of her customers who have homeowners insurance added quake coverage, mainly through Geovera, one of the few companies that sells stand-alone quake insurance. "We have talked to six so far with (earthquake coverage) who had damage. None of the damage exceeded the deductible amount," she said.
If a homeowner has $450,000 worth of coverage, the damage would have to exceed $45,000 if they had a 10 percent deductible before insurance would pay off.
Despite efforts by insurance companies to offer more attractive policies, those high deductibles and steep premiums still make quake coverage a hard sell in earthquake country.
When the Loma Prieta earthquake hit the Bay Area in 1989, about 26 percent of people who had homeowners insurance had purchased earthquake coverage. That takeup rate had risen to 34 percent by the time the Northridge quake struck Southern California. A year later, it hit 36 percent, according to data from the CEA.
But after the Northridge quake, many of the state's largest insurance companies stopped or threatened to stop selling new homeowners policies rather than continue offering quake coverage. In response, in 1996 the state established the CEA.
Companies that sell homeowners insurance in California must offer earthquake insurance. Companies representing about 70 percent of the residential insurance market offer a CEA policy. The rest offer their own.
The price of an individual policy depends on the home's location, soil type, year and type of construction and number of stories. The greater the risk of damage, the higher the premium. Homeowners can get a discount if they take measures to secure their home such as strapping a water heater or bracing their foundation.
In the early days, CEA premiums were a lot higher than what homeowners had been accustomed to paying and it offered only a 15 percent deductible. The takeup rate began a long and steady decline.
"We challenged the CEA rates and won," says Doug Heller, an independent insurance expert who was with Consumer Watchdog at the time. "The CEA was being formed out of nothing. While there was a backstop that participating insurers had to provide (if the CEA ran short of money to pay claims), it wasn't well capitalized. The initial view was, we have to charge a lot to cover the claims that might happen."
Today, thanks to "better science, more thoughtful actuarial analysis and the good fortune of not having a major quake since 1994, the CEA is well capitalized," Heller said.
The CEA says that it has the financial wherewithal to pay claims arising from two Northridge earthquakes if you include its capital, reinsurance, revenue bonds and industry assessments, if needed.
"I don't think any homeowners should resist buying earthquake insurance because they are afraid of the CEA not being able to pay claims. The CEA is in good shape."
So are their policyholders. It's the rest of the state that's not, Heller added.
Although lenders require borrowers to purchase homeowners insurance if they have a mortgage, and to purchase flood insurance if they live in a designated flood zone, they do not require quake insurance. If they did, the takeup rate would be higher than the current 10 percent.
Joseph Pigg, a senior vice president with the American Bankers Association, is not sure why lenders don't require it, but said it is probably because quake insurance is not available in all markets nationwide and when it is, it can be "prohibitively expensive."
Brad German, a spokesman for Freddie Mac, said a federal law requires it to demand flood insurance on mortgages it guarantees.
In general, CEA premiums have been coming down, although they have been going up for some homeowners in response to new scientific data. And the CEA has tried to offer more choices, such as paying a higher premium to get a 10 percent deductible and having a deductible apply separately to contents and structure.
"But it still remains a policy that is expensive to use because of the high deductible," Heller said.
Melinda Adams, a State Farm agent in Napa, added a CEA policy to her own homeowners insurance at a cost of $972 per year. "We lost a lot of stuff" in the quake, she said. "So many dishes and glasses and bookcases have fallen over. Just about anything that could break did."
Even so, the damage will not meet her 15 percent deductible, which works out to $84,450 on her home, which has a coverage imit of $563,000.
"This was a big one but (quake insurance) was meant for houses falling off the foundation. I'm looking at it as a positive. Fortunately we didn't need it," she said.
Kathleen Pender is a San Francisco Chronicle columnist. Net Worth runs Tuesdays, Thursdays and Sundays. E-mail: kpender@sfchronicle.com Blog: http://blog.sfgate.com/pender Twitter: @kathpender
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