Governor signs bill that could trigger higher insurance rates

By: AP
By: AP

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
Schwarzenegger.
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,
2008.
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


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