California Earthquake Authority (CEA)

The California Earthquake Authority (CEA) is a publicly managed, privately funded California entity that sells residential earthquake insurance through participating insurers. January 17, 1994, 4:30 in the morning: Northridge, magnitude 6.7, north of Los Angeles. Insured losses run well past ten billion dollars. And California law requires any insurer selling homeowners coverage to offer earthquake coverage too. Insurers draw the obvious conclusion and stop writing homeowners. In 1996 the state created the CEA to reopen the market. It is publicly managed and privately funded: contributions from participating insurers at the start, premiums, reinsurance, and cat bonds issued through its vehicle Ursa Re. The state guarantees nothing. If an earthquake exceeds claims-paying capacity, the law provides for claims to be paid pro rata, and the policy says so. Policies are sold by participating insurers, which keep the homeowners policy and pass the earthquake coverage to the CEA. The deductible is a percentage of the dwelling limit, from 5 to 25 percent depending on the option. That is where everything happens: on a home insured for 600,000 dollars, a 15 percent deductible leaves 90,000 dollars with the owner. The CEA is one of the largest residential earthquake insurers in the country, with capacity on the order of twenty billion. Take-up still hovers around one insured household in eight or ten, which leaves most of California's seismic risk uninsured. Parametric earthquake products sold to homeowners have moved into that gap, often to fund the deductible.