In the February 1, 2010 edition of StateNet Capitol Journal, Lou Cannon notes that “only 12% of Californians with homeowners insurance also have quake insurance” as offered by the California Earthquake Authority. Cannon cites premiums costing “several hundred dollars a year and the deductible is 15 percent of the home’s insured value” as the reason that 88% of Californians don’t buy quake insurance. To protect California’s already bankrupt budget, Rep. Loretta Sanchez (D-CA) and Sens. Barbara Boxer (D-CA) and Diane Feinstein (D-CA) have introduced legislation that would provide a federal guarantee for any bonds sold to reimburse losses after a major earthquake. The bill in the Senate is co-sponsored by Florida’s two senators who are trying to federalize hurricane insurance.
We predicted this event would occur as part of a grand deal between the Gulf Coast congressional delegation and the California delegation in two papers last year. The goal of those two delegations is to pass on the costs of insuring their high risk locations to the other 40 plus state. As we stated in our paper, this approach is simply wrong. Those individuals and businesses that derive the benefit of living along the coast or in sunny California should also bear the risk of living in known high risk locations. Before passing on costs to Ohioans and Minnesotans, those high risk states should remove rate caps, charge homeowners the true costs of living in those locations, and require catastrophic coverage as part of obtaining a mortgage.
The continued federalization of disasters is a good deal for a minority of Americans, but a terrible deal for a majority of us.