Governor signs bill that could trigger higher insurance rates

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SACRAMENTO (AP) - More than 760,000 California homeowners who buy earthquake insurance through a state-run authority could see
their premiums rise under a bill signed Friday by Gov. Arnold
But the measure's supporters say that without the legislation
homeowners could be hit with even bigger rate increases.
The measure by Sen. Mike Machado, D-Linden, creates a new $1.3
billion underwriting requirement for insurance companies
participating in the California Earthquake Authority program.
That $1.3 billion requirement will replace a $2.2 billion
insurance industry commitment that's scheduled to expire on Dec. 1,
State Treasurer Bill Lockyer opposed the legislation, predicting
it would force a raise in rates by another 8.5 percent to make up
for the potential loss of industry contributions. Right now, they
average about $700 a year.
He urged lawmakers to extend the $2.2 billion obligation until
the authority builds up $6 billion in cash reserves. Currently it
has only $2.7 billion.
But Machado said the $1.3 billion obligation was the best
compromise that he could work out with the politically powerful
insurance industry.
He said that an extension of the $2.2 billion requirement could
have driven insurers out of the state. Without the $1.3 billion
replacement, homeowners would face average rate hikes of 20
percent, he predicted.
Tim Richison, the authority's chief financial officer, said the
likelihood of a rate increase with the smaller industry
underwriting obligation will depend on how much the authority has
to pay for the insurance it buys - called reinsurance - to help
cover its claims.
Under Machado's bill, the $1.3 billion underwriting obligation
will be phased out over 10 years, although the phase-out could be
suspended for up to two years if the authority is forced to pay at
least $500 million in claims because of an earthquake.

(Copyright 2007 by The Associated Press. All Rights Reserved.)

AP-NY-10-05-07 2021EDT