Reinsurers pinched in California as CEA pushed to hold cost, expand cover

The California Earthquake Authority (CEA) remains under continued consumer pressure to cut or even nationalise its reinsurance programme to improve affordability and penetration of earthquake insurance.

"The problem we are facing is primarily driven by the state and nature of the reinsurance market," an insurance sector leader of the Consumer Federation of America argued for the CEA board Friday.

"It is certainly not because CEA policyholders and prospective customers are demanding coverage inappropriate to their exposure or needs."

The CEA should consider pricing its reinsurance programme against a lower threshold than its current 1-in-350 year probability. The lobby suggests the CEA test its pricing power at 1-in-250, 1-in-200 and 1-in-100.

The CEA could weigh "the benefits of those savings (including avoiding coverage reductions) against the risk of reduced claims payment in the event of an outlier earthquake to determine which of the lowered return periods is best for California residents."

By its language, the consumer lobby group sees some measure of profit mongering among private reinsurance markets where "high cost and reduced availability" have fallen "too much on California residents in the form of a diminished product."

Nationalisation of capacity might help. "We urge the Board today to begin discussions concerning the creation of public reinsurance facility that could provide risk transfer capacity without a profit margin to the CEA."

Other states and jurisdictions might be brought in to mutualise risks with earthquake or other catastrophic risks, the lobby group believes.

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