As if Southern California’s recent devastating wildfires weren’t enough, the Golden State got a second jolt on Oct. 30 via a 5.6 magnitude earthquake just outside of San Jose. An article published by Standard & Poor’s Ratings Services, which is titled “Is California’s Earthquake Insurance Coverage On Shaky Ground?” says that the quake, though not severe, was large enough to remind us that it is simply a matter of time before homeowners, the California Earthquake Authority (CEA), and insurers will all have to pay.
The CEA is the largest earthquake insurance provider in California — and in the world. It is not an insurance company but rather an 11-year-old, state-created, privately funded entity governed by state officials. CEA has approximately 750,000 policyholders and 17 member companies.
Standard & Poor’s does not rate CEA, but it believes that CEA’s $8 billion in claims-paying ability could be inadequate if one or more major earthquakes were to occur. If claims on the CEA were larger than its ability to pay, policyholders might have to accept a prorated percentage of their expected coverage or installment payments.
An analysis of the 10 largest Standard & Poor’s interactively rated homeowner insurance carriers in California shows that these insurance providers continue to maintain at least strong financial strength incorporating Standard & Poor’s 1-in-250-year catastrophe capital charge.
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