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January 31, 2007
EARTHQUAKE INSURANCE CRISIS - Yes, Virginia, There is One - AGAIN!
I was at a luncheon in Westlake Village Calif yesterday put on by CAI. I went there to socialize, eat, and see colleagues and friends in the area. But especially, I went there to see what the CEA offers as insurance protection. I came away with a very uncomfortable feeling, and it was not the food, or the company. It was the topic. I have written articles on "Earthquake Insurance - To Buy or Not to Buy", two versions in fact, one based on a pragmatic discussion about why Boards should not "Just Say No" without doing considerable footwork involving the members, and one from the "Mickey Mouse" perspective of how to assess the risk. (Visit me at http://www.californiacondoguru.com to have a look.
But I feel the need to delve deeper into the overall problem and enlist help. Why? Because the problem goes deeper every time I scratch at it.
The CEA presenter made some things very clear. The CEA will not be selling earthquake policies to associations - they are classified as commercials. The CEA sells "residential policies" - and thank goodness for it, because that is a much needed product. Homeowners in single family and condo developments can go there and get coverage intended only as a "mini" policy, meaning it will likely not provide full coverage, unless you live in a box (and still, there is a 10% deductible and lots of small print involved). Go there, and read all you can, and you will see that you can take advantage of the options, to fill the gaps - as much as they can be filled, with the Association coverage. If your association does not carry EQ insurance - then you can still get a policy, but the premium is somewhat higher.
So for condos, what does the CEA policy do? It provides options for contents, building coverage for what you are responsible per the governing documents (paint, carpet, possibly cupboards, dry wall, or such), loss of use, even reduction in value of your home if that occurs, but most importantly, probably - loss assessment coverage for condo owners. When the CEA was set up, the loss assessment (that could be used to pay the deductible) limit for condos ($25,000) might have seemed palatable - but now, it probably won't cover all of the deductible costs in any sizable event for any condominium in this state with serious damage, except maybe in the most depressed areas. You can get more information by visiting the website, in fact, a lot of it. Go to http://www.earthquakeauthority.com.
Why is this important? With the severe increases in costs of the HOA master insurance policies, and the reductions in coverage being offered, the last vestage of hope was that owners could protect themselves to cover the deductible they might have to pay a fair share of (save the 10% or 15% deductible chosen for the CEA policy).
That hope is waning.
What saves an HOA in an EQ event that causes rampant damage throughout the complex is the owners remaining, bucking up, and weathering the assessment for the deductible and uninsured damaged areas. The SBA in Northridge came in in many cases and offered low interest loans. Owners in Associations that carried EQ insurance were generally able to survive and rebuild. Not so much with the uninsured associations. This happened because owners could withstand the temporary reversal in fortune (the fortune being the also substantial appreciation enjoyed by many Californians).
If the costs go out of reach, and associations do not carry EQ insurance, that will be a serious problem for CID housing and the economy of the state. If association do carryh the EQ insurance but the individual owners do not do EVERYTHING THEY CAN to fill the gaps in coverage, that could also be a serious problem for CID housing and the economy of the state.
And now, even if the owners do EVERYTHING THEY CAN to insure, they may not be able to count on their neighbors to do the same - and may not themselves be able to insure the gaps to an affordable level.
The availability of earthquake insurance is a big issue and needs the attention at the highest levels. I am sure that heard the CEA rep say in essence that it can do better with the monies collected for premiums than private carriers simply because of the lack of costs of doing business for profit. So I have to ask, would it not make sense for the CEA to be expanded into providing coverage for HOAs? I can think of no other solution? Can you? I invite comments. (Private insurer and brokers, you may hit me with comments too - but not to hard I hope!)
And does this mean I do not believe in earthquake insurance? Not at all. I believe in getting it, as much as possible under any circumstances, with as much coverage as the association and each individual owner can get. It could save your association when the "big one" hits and that is enough for me as a condo owner. Do I believe it is then a non-issue? No I do not. We need to keep fighting for options. This is ONLY ONE AREA of concern that needs attention, but it is a big one.
Posted by Beth Grimm at January 31, 2007 10:01 AM