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Learn Why Your Insured's CEA Earthquake Insurance Premium May Have Changed

New and renewal CEA earthquake insurance policies starting on or after July 1, 2019, include important changes. As a result, you may have clients who experience a change in their CEA premium.

What should you expect?

With the rate changes that were approved in 2018 and went into effect July 2019:

  • About 60% of our policyholders will see a premium decrease of more than 10%.
  • About 15% of our policyholders will have premiums that remain stable or have a slight decrease (of 10% or less).
  • About 10% of our policyholders will see a slight increase (of 10% or less).
  • About 15% of our policyholders will see an increase of more than 10%.

Why are some CEA policyholders experiencing a premium increase?

If your insured's premium has gone up, it may be due to one or more of the following factors:

  • New science that showed increased earthquake risk in certain locations.
  • change in rating territories to reflect the increased risk associated with those locations, as determined by new information on fault system locations.
  • Updates to include roof type as a rating factor for homeowners, because roof weight impacts the damageability of a house during an earthquake.
  • Modifications to foundation-type definitions to recognize combination (or "other" type) foundations are more damageable but can be retrofitted and receive a hazard reduction discount.
  • Removal of CEA's self-verified earthquake retrofit 5% hazard reduction discount: If your insured had the self-verified 5% discount, they must now have a contractor or structural engineer verify the retrofit in order to get a policy discount.
    • The good news is that once the retrofit verification form is signed and turned in to the participating residential insurer, your insured's discount will now be between 10% and 25%!
  • Refinement in year-of-construction categories.
    • Categories are now:
      • 2005 or later
      • 1990-2004
      • 1980-1989
      • 1960-1979
      • 1940-1959
      • 1939 or earlier
    • This refinement recognizes improvements in construction beginning in 2005 that are reflective of updated construction techniques (due to code changes)—newer construction has a reduced earthquake risk.

And of course, if the reconstruction cost of your insured's home has increased (as indicated by the insured value on the residential policy), the CEA earthquake insurance premium will also increase.

Helping your Insured reduce their premium

Here are some strategies to lower the CEA earthquake insurance premium:

  • Choose a higher deductible (up to 25%) to pay a lower yearly premium cost.
  • Adjust the amount of coverage:
    • Reevaluate the coverage limit for coverages like personal property, in case it is higher than the value of the insured's property.
    • Select Homeowners Choice, which allows you to separate the insured's coverages, or just cover the dwelling itself, which will keep premium costs down.
  • Remember, our Premium Calculator can help you create a comparison for your insured to review. 
  • Encourage your insureds  to apply for the Earthquake Brace + Bolt (EBB) or CEA BB programs to receive up to $3,000 toward a seismic retrofit on their older house, which could then qualify them for a premium discount of up to 25% from CEA.
  • Even if your client doesn't qualify for a retrofit grant, encourage them to consider retrofitting their older house out of pocket to receive a premium discount from CEA—although this does cost money up front, in the long term it makes their house safer and strengthens it against damaging earthquakes.

Opportunities for your insureds who received a premium reduction

For some clients, a premium reduction could mean an opportunity to review their coverages for any possible adjustments or new coverages that could provide them additional protection and peace of mind.

Also, in areas where the scientific data indicated a reduction in risk, the reduced premiums may afford an opportunity to re-market to clients who haven't considered earthquake insurance in the past.

Our background: CEA is a not-for-profit enterprise

When the California Legislature created the not-for-profit CEA in the wake of the devastating Northridge earthquake, legislators mandated that:

  • We are:
    • Publicly managed by a governing board, which includes the Governor, Treasurer and Insurance Commissioner.
    • Privately financed
      • In part by our participating residential insurers when they join our organization, whose agents sell and service our policies, and
      • Most importantly, by premiums we receive from our policyholders. This creates a firm commitment for us to be careful stewards of our policyholder funds—we ensure pricing is fair to all policyholders and is tied to your specific earthquake risk.
  • We offer residential earthquake insurance to Californians.
  • Our rates are actuarially sound.
  • We use the best available scientific information to set our rates.
    • We receive detailed earthquake risk and forecast information from sources that include the Working Group on California Earthquake Probabilities and multiple catastrophe modelers. The newest data shows an increase in the risk of larger damaging earthquakes, along with quakes having the ability to "jump" faults to cause multifault ruptures. Our rates must reflect this increased risk exposure.
  • CEA rates and rate changes are reviewed and approved.

These requirements allow us to remain financially strong. We could cover all claims if the 1906 San Francisco, 1989 Loma Prieta, or 1994 Northridge earthquake reoccurred today.

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