California Earthquake Authority raising rates by 6.8% - 2024 10 02

Published Date: 10/02/2024

California’s Earthquake Insurance Shake-Up: Why the CEA Is Raising Rates — and What Homeowners Can Do About It

Three decades after the 1994 Northridge Earthquake shook Southern California to its core, most homeowners still don’t carry earthquake insurance. Despite living in one of the most seismically active regions in the world, only about 13% of California homeowners have coverage.

That number may dip even lower after January 1, 2025 — when the California Earthquake Authority (CEA), the state’s largest earthquake insurer, will raise its rates by an average of 6.8% statewide.

While some policyholders may see modest decreases, others could face rate increases of up to 12%, depending on their location, construction type, and risk factors.

Insurance expert Karl Susman, a California independent insurance broker and frequent media commentator, explained what’s behind the move — and what options homeowners still have in this increasingly expensive insurance landscape.

“Costs of reconstruction of our homes have been going up every year,” Susman said. “Not just with inflation, but they’ve been going up pretty dramatically since 2020.”

1. A Crisis Rooted in Earthquake History

The California Earthquake Authority was created in the aftermath of the 1994 Northridge Earthquake — one of the costliest natural disasters in U.S. history, causing more than $20 billion in insured losses and forcing some insurers to withdraw from the homeowners market altogether.

To prevent a total collapse of the state’s insurance system, lawmakers formed the CEA in 1996 as a nonprofit, publicly managed, privately funded organization. It allows insurers to continue writing homeowners policies by transferring earthquake risk to the CEA, which specializes in that peril.

Today, the CEA covers over 1.1 million policyholders, representing more than two-thirds of all earthquake insurance sold in California.

But even with its size and stability, the CEA faces the same pressures as the rest of the state’s insurance industry: rising reinsurance costs, inflation, and higher rebuilding expenses.

2. Why the 6.8% Rate Increase Is Happening

The CEA’s rate hike isn’t arbitrary. It’s based on two key cost drivers:

🔨 Reconstruction Costs Are Soaring

The price of rebuilding — from materials to labor — has climbed dramatically since 2020. Lumber, steel, and concrete prices remain elevated. Skilled construction labor, already in short supply, commands premium wages.

“Construction costs have been going up every year — not just with inflation,” Susman explained. “They’ve been going up pretty dramatically since 2020.”

Those costs directly affect how much insurers must pay in claims after an earthquake — meaning higher premiums are needed to stay solvent.

🌎 Reinsurance Is Getting More Expensive

Like wildfire insurers, the CEA relies heavily on reinsurance — insurance for insurance companies — to spread risk and ensure claims can be paid after a catastrophic quake.

But global reinsurers have raised prices in recent years, citing increasing frequency and severity of natural disasters worldwide. That cost gets passed down to consumers.

3. What Homeowners Can Expect

Starting January 1, 2025, the new rates will take effect for all CEA policy renewals. The average statewide increase is 6.8%, but the actual impact will vary widely:

• Some areas with lower seismic risk or retrofitted structures may see small decreases.
• Homeowners in high-risk zones or with older, unreinforced homes could see increases as high as 12%.

While those numbers are concerning, Susman emphasized that California homeowners still have options — both within the CEA and through private insurers.

“The good news is you can still get earthquake insurance in California from a number of different carriers,” he said. “Unlike wildfire insurance, which is hard to find right now.”

4. How to Manage Higher Premiums

If your renewal notice brings sticker shock, there are several ways to control your costs without sacrificing coverage.

✅ 1. Shop Around

While the CEA remains the largest provider, it’s not the only one. A handful of private insurers offer earthquake policies with flexible deductibles, custom limits, and competitive pricing — particularly for newer or retrofitted homes.

“If your rate does come in from the California Earthquake Authority and you think it’s too high, you can definitely shop around,” Susman said.

Independent brokers can compare options across multiple carriers and help find the best fit.

✅ 2. Adjust Your Deductible

The CEA allows policyholders to choose deductibles between 5% and 25% of their home’s insured value. Increasing your deductible can significantly lower your premium — though it means paying more out of pocket if a quake occurs.

“You can also look to change the deductible you have on the policy as well to save some money,” Susman advised.

For example, on a $500,000 home:

• A 10% deductible means paying $50,000 before coverage kicks in.
• A 20% deductible doubles that to $100,000 — but could reduce your premium by 30–40%.

✅ 3. Retrofit Your Home

Perhaps the most effective long-term strategy is earthquake retrofitting, which not only improves safety but also qualifies for CEA premium discounts.

“The Earthquake Authority does offer rate discounts for retrofitting your home,” Susman noted. “If your house was built before 1980, is wood-framed, and on a raised foundation, you may qualify.”

Discounts are also available for mobile homes equipped with earthquake-resistant bracing systems.

Homeowners can visit the California Residential Mitigation Program (CRMP) at EarthquakeBraceBolt.com for grants and incentives covering up to $3,000 in retrofit costs.

5. Why Earthquake Insurance Still Matters

Despite the added cost, going without earthquake insurance in California remains a major financial risk.

According to the U.S. Geological Survey, there’s a 99% chance of a magnitude 6.7 or larger earthquake hitting California within the next 30 years. Yet millions of homeowners remain uninsured.

“Given the damage from the 1994 Northridge earthquake,” the report noted, “it’s surprising that only about 13% of California homeowners have earthquake insurance.”

Without coverage, most homeowners would have to pay 100% of rebuilding costs out of pocket — since standard homeowners insurance specifically excludes earthquake damage.

Even federally declared disaster assistance is limited, typically offering only low-interest loans, not grants, for rebuilding.

6. The Broader Context: A Fragile Insurance Ecosystem

The CEA’s modest rate increase stands in stark contrast to the turmoil rocking other parts of California’s insurance market.

While wildfire coverage has become increasingly scarce — with major carriers halting new policies or exiting altogether — earthquake insurance remains available and relatively stable.

That’s partly due to the CEA’s structure: as a nonprofit, quasi-public entity, it doesn’t seek profit but must remain actuarially sound. Rate increases, while unpopular, ensure the Authority can pay claims after a catastrophic event without risking insolvency.

Susman emphasized this distinction, noting that CEA coverage is still accessible — a rare bright spot in an otherwise contracting insurance market.

“Unlike wildfire insurance, which is hard to find right now,” he said, “you can still get earthquake insurance in California.”

7. Looking Ahead: Balancing Affordability and Preparedness

As Californians grapple with rising insurance costs across the board — from home to auto to flood — the CEA’s 6.8% increase is a reminder of the broader economic forces shaping coverage statewide.

Still, experts urge perspective: even with the hike, earthquake insurance remains a vital safeguard against financial catastrophe.

The challenge for policymakers, insurers, and homeowners alike is finding a balance between affordability and readiness — ensuring Californians can both buy coverage and rebuild when disaster strikes.

8. Final Thoughts

Earthquake insurance in California is entering a new phase — one defined by economic realism rather than complacency.

Yes, premiums are rising. But they’re rising for a reason: to reflect the true cost of rebuilding homes and communities after the inevitable next big quake.

And unlike wildfire coverage, earthquake insurance is still widely available — especially for those proactive enough to retrofit, shop around, or adjust deductibles strategically.

“The good news,” Susman reminded viewers, “is you can still get earthquake insurance in California from a number of different carriers.”

That accessibility, paired with growing awareness and smarter regulations, may be California’s best defense against the next seismic shock — both geological and financial.