2023 Policy Option Changes

CEA is committed to making earthquake insurance as available, reliable, and affordable as possible. We seek to maintain the financial strength necessary to honor our promises to policyholders when a damaging earthquake occurs.

There are upcoming changes to CEA policy options that will affect our policyholders. The information on this page is intended to help you and your customers better understand these changes.

When Will These Changes Go Into Effect?

These changes will likely not take effect until at least late 2023.

What will Stay the Same?

Although CEA is changing some of its optional policy limits, it is still offering far more than the minimum required by California state law. The changes are designed to reduce the negative impact on our policyholders, mitigating the need for steep rate increases while maintaining key coverage features.

CEA residential earthquake insurance policies will continue to:

• Cover costs to rebuild or repair a home following a damaging earthquake, 
• Cover the additional living expense costs that will be incurred while the home is uninhabitable,and
• Offer financial incentives to retrofit older, more vulnerable homes.

CEA policy limits that will not change:

• CEA will continue to provide coverage for home/rebuilding costs, matching the Coverage A amount on the companion homeowners or other fire insurance policy. (This is identical to the minimum limit required by state law.)
• CEA will continue to offer options for up to $100,000 of Additional Living Expenses coverage (loss of use), if policyholders incur costs because they have to relocate temporarily due to earthquake damage. There is still no deductible for this coverage. (This exceeds the minimum limit required by state law of $1,500.)
• CEA will continue to offer a discount of up to 25% for a code-compliant retrofit of a qualifying older home.
  • Learn how your customers can get a Hazard Reduction Discount if they complete a verified earthquake retrofit.
• CEA will continue to offer options for up to $30,000 in coverage for building code upgrades. (This exceeds the minimum limit required by state law of 10,000.)

What Will Change?

In 2023, CEA will emphasize coverage to repair or rebuild a damaged home while providing additional living expenses for the time the homeowner is forced to live elsewhere while the home is being repaired. CEA will de-emphasize ancillary policy options such as personal property.

We will also modify the optional coverage we currently offer for breakable items. This will help mitigate the need for larger rate (and premium) increases in the coming years.

• Personal Property – Coverage C: Maximum limit of insurance reduced from $200,000 to $25,000. (This exceeds the minimum limit required by state law of $5,000.) 
• Deductible Options: We will retain the 5%, 10%, 15%, 20%, or 25% deductible options for all CEA policies, with two exceptions:
  1. If a home is valued at over one million dollars; and/or
  2. If the home was built before 1980 and is not verified to have been retrofitted.

In both these cases, the lowest available deductible will be 15% (State law only requires a 15% deductible).

Breakable Personal Property and Exterior Masonry Veneer: CEA will eliminate these optional endorsements that provide coverage for these items. (This provision is not required in state law.)  CEA plans, however, in the next edition of its policy forms, to include $500 in new coverage for breakable items of personal property in all policies. This would not take effect until late 2023, or later, as it requires additional regulatory review and approval from the California Department of Insurance.

Summary of Changes

* Following approval by the California Department of Insurance (CDI)

When Will These Changes Take Affect?

If your customer has selected one of the affected policy options, then once the changes have been finalized and an implementation date has been set, the policy option changes will take effect at the next policy renewal date.

You should proactively contact your customers that will be affected by these changes and discuss the coverage options that work best for their coverage needs and budget. 

Why Are These Changes Needed?

CEA relies extensively on reinsurance (essentially insurance for insurance companies) and similar risk transfer tools to offer all the policy options available today while maintaining the current levels of claim-paying capacity. However, several worldwide events have combined to restrict the amount of risk transfer available to CEA, and the cost of the risk transfer that remains has increased significantly.

Extreme weather events driven by climate change (including wildfires, hurricanes, and other windstorms), historically high inflation, the increasing costs of construction, and even the war in Ukraine, combined with CEA’s continued exposure growth, has created unprecedented stress on CEA’s ability to maintain financial strength while avoiding the need for historically large policyholder rate increases. 

In an ongoing effort to promote the best interests of its policyholders, CEA has taken several steps to maintain its financial strength and minimize the need for increasingly steep policyholder rate increases—while maintaining key coverage features focusing on rebuilding the structure of the home with coverage for additional living expenses while that repair work is underway.  

Changing our insurance policy options will help offset unprecedented significant premium increases for CEA policyholders in the future, keeping earthquake insurance more affordable for Californians. Several factors have contributed to the need to make changes:

• Historic inflation: The cost of reconstructing homes continues to accelerate, now at an annualized rate in excess of 13% according to the California Construction Cost index, driving up the total insured value of all of CEA’s policies. 
• In addition, due to high levels of inflation, rising reconstruction costs, as well as the increasingly tight reinsurance market, CEA believes that modifying some of the expanded policy limit options it now offers is the best available solution to control costs that are otherwise passed on to its policyholders.
• CEA does not receive any ongoing state or federal funding (unlike many other public natural catastrophe insurance entities).
• Without action, CEA policyholders will likely see their premiums significantly increase, perhaps even double, over the next five years.

What Else Should I Know?

• CEA is a not-for-profit organization and is the largest residential earthquake insurance provider in the United States.
• State law requires CEA to offer a basic earthquake insurance policy. This includes the same dwelling coverage limit used in a home’s underlying residential insurance policy, a standard deductible of 15%, $5,000 in personal property coverage, and $1,500 for additional living expenses.
• Over time CEA has expanded its policy limits above and beyond the minimum required by law. However, due to high inflation and a tightening reinsurance market, CEA believes that for our policies to remain affordable, it is necessary to amend some of the expanded policy limits it now offers.
• CEA continues to encourage policyholders who live in older homes to improve their safety and mitigate earthquake losses by completing a seismic retrofit—work that can usually be completed in a couple of days and can lower a CEA premium by as much as 25%.
• CEA has about 1.1 million policyholders and the financial strength necessary to pay all covered claims that would result from the reoccurrence of a historic earthquake. CEA currently has access to existing capital, reinsurance, and other funding sources, which total about $19 billion to pay claims. So, if the Great 1906 San Francisco Earthquake—one of the most significant earthquakes of all time (per USGS)—or the 1994 Northridge earthquake reoccurred today, CEA would be able to cover all policyholder claims.
• Affordable earthquake insurance coverage is an important part of California’s economic stability. It is a valuable tool to help minimize the possibility of residents incurring major financial losses and the potential upheaval and trauma that often accompanies it. CEA continues to make every effort to provide coverage that is as affordable as possible while remaining actuarially sound.
• You and your customers can visit StrengthenMyHouse.com to learn how to prevent costly earthquake damage to their home, protect themselves financially, and other steps to prepare for earthquakes.

What if My Customers don’t like these new coverage choices?

If, after using our Premium Calculator to learn about the choices and costs, a CEA policy doesn't meet your policyholder’s needs, your policyholder could purchase earthquake insurance from another carrier. One of the affiliated carriers you represent may offer an earthquake insurance policy that is better suited to their coverage and budget needs.

Strengthen Your Home

Whatever your customer decides for their earthquake insurance needs, if they live in an older home or a home with earthquake vulnerabilities (such as an unreinforced chimney), we also strongly recommend they consider seismically retrofitting it to make it more resistant to earthquake damage. These projects can sometimes be done in a day or two and are usually pretty inexpensive—especially when compared to the costs of rebuilding a home that has been severely damaged in an earthquake.

CEA policyholders with qualifying older homes that have been properly retrofitted may be eligible for a premium discount of up to 25% on their CEA policy premium.

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Learn more about strengthening my home