CEA is committed to making earthquake insurance as available, reliable, and affordable as possible. For more than a decade we have offered optional coverage limits far greater than the minimum limits provided by California law, while maintaining robust financial strength to pay policyholder claims after a damaging earthquake.
There are upcoming changes to CEA policy options that will affect some of our policyholders. The information on this page is intended to help you and your customers better understand these changes.
When Do These Changes Begin?
These policy option changes went into effect for new policies written on or after August 1, 2023.
For current customers, the policy option changes will take effect at the next policy renewal date after November 1, 2023.
What will Stay the Same?
Although CEA is lowering some of its optional policy limits, our offerings will always remain at or above the minimum required by California state law.
CEA will continue to offer financial incentives to encourage retrofitting older, more vulnerable homes. This includes a mitigation discount of up to 25% for a code-compliant retrofit of a qualifying older home.
CEA residential earthquake insurance policies will continue to:
- Provide coverage for costs to rebuild or repair a home following a damaging earthquake,
- Provide coverage for personal property,
Provide coverage for additional living expenses if a policyholder cannot live in their home due to earthquake damage. 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 for Loss of Use coverage, 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 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?
CEA revised coverage offerings 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.
Policy limits/coverages that CEA is changing:
- Personal Property – Coverage C: Maximum limit of insurance reduced from $200,000 to $25,000. (This lowered limit still exceeds the minimum limit required by state law of $5,000.)
- Deductible Options: We will retain the option to pick 5%, 10%, 15%, 20%, or 25% deductible options for all CEA policies, with two exceptions:
- If a home is valued at over $1 million; and/or
- If the home was built before 1980 and is not verified to have been seismically retrofitted.
In both these cases, the lowest available deductible will be 15% (State law only requires that insurers offer 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.)
Summary of Changes
| Minimum limit required by state law | Current CEA Options | New Options | |
|---|---|---|---|
| Coverage A – Dwelling | Replacement Cost | Replacement Cost | No Change |
| Coverage C – Personal Property | $5,000 | $200,000 maximum | $25,000 maximum |
| Coverage D – Additional Living Expenses | $1,500 | $100,000 maximum | No Change |
| Mitigation Discount | CEA: 5% All other insurers: None |
25% maximum | No Change |
| Deductible | 15% | 5%, 10%, 15%, 20%, 25% |
|
| Masonry Veneer | None | Available | Eliminate optional endorsement |
| Breakables | None | Available | Eliminate optional endorsement |
When Will These Changes Take Affect?
These policy option changes went into effect for new policies written on or after August 1, 2023.
If your customer has selected one of the affected policy options, the policy option changes will take effect at their next policy renewal date on or after November 1, 2023.
Contact your customers that will be affected by these changes and discuss the coverage options that work best for their coverage needs and budget. You should also consider offering your customers information about other California licensed insurance companies that offer earthquake coverage.
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 and to maintain robust 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), 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 help 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:
- 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 would have seen their premiums rise even more steeply in the future.
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, for our policies to remain affordable, CEA finds it is necessary to lower some of the optional policy limits it 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 an historic earthquake. CEA currently has access to accrued capital, reinsurance, and other funding sources—in 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 charging actuarially sound rates.
- 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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A. Homes with a dwelling value less than $1 million that are built before 1980 and built on a raised or “other” foundation will be required to submit proof of a qualified retrofit in order to select the 5% or 10% deductible options. Proof of a verified retrofit can be done by having a licensed contractor, civil engineer or structural engineer complete and sign the “CEA Earthquake Insurance – Dwelling Retrofit Verification (DRV)” form and submitting it to the CEA participating insurer.
Homes with a dwelling value of over $1 million will only be eligible for deductibles of 15%, 20%, or 25%.
A. CEA works hard to keep rates low and offer a range of insurance policy options. When a damaging earthquake strikes, we want to help policyholders get back on their feet—to rebuild and/or repair their earthquake-damaged homes. CEA is a not-for-profit entity which does not receive any state or federal financial backing to pay claims after an earthquake. Additionally, as the cost of home construction and repairs is increasing in California, the market for reinsurance is tightening.
[These increased costs have a direct impact on our premium rates. We made the decision to lower the amounts of optional coverages we offer in an effort to moderate the impact of this inflationary pressure on our rates. Our changes reflect our focus on prioritizing the protection and repair of your home if it is damaged in an earthquake, and helping you pay additional living expenses during the time you may be forced to live elsewhere while your home is being repaired.]
A. There are different ways to reduce the cost of your policyholder's CEA policy:
- Eligible homes may qualify for a discount up to 25% on CEA policies if a seismic retrofit is completed. Mobilehomes that are properly retrofitted are also eligible for a premium discount of 21%. Learn more information about how to get a premium discount on CEA’s website.
- Discuss increasing the deductible to lower the premium—CEA deductibles range from 5% to 25%.
- Policyholders may be able to reduce costs by declining or reducing personal property and loss of use coverages and only insuring the dwelling.
- Make sure the coverage limits accurately reflect what your policyholder owns, so they don’t pay for more than they need.
A. A. The deductible is not out of pocket—it is subtracted from the covered damage, so they don’t have to pay any of the deductible up front to receive their claim payment.
A. These changes go into effect for new CEA policies written on or after August 1, 2023 and renewals on or after November 1, 2023. Current policyholders will see the impact at the next policy renewal date after the changes have taken effect. We will proactively communicate these changes to policyholders, participating insurers and agents.
A. Earthquake insurance is not mandatory; however, earthquakes are a certainty in California. A big earthquake may cause catastrophic damage to a home’s structure and foundation—and may require use of your customers’ hard-earned life savings to repair damage to the home. Earthquake insurance coverage can help offset potentially devastating financial losses from earthquakes.
A. A new training course regarding the optional coverage limits and deductible options is available now. Register now for the new training course.