Issue Brief

An Overview of the California Earthquake Authority

Feb 15, 2017 | Daniel Marshall

Summary

The central tenets of the publicly managed California Earthquake Authority—autonomy, freedom to participate in markets, and financial and actuarial soundness—have contributed to the program’s success and should be transferable and useful in other contexts.

Key Findings

  • The 1994 Northridge, CA, earthquake caused unprecedented losses for residential insurers, who are required by law to offer earthquake coverage. As a result, most stopped selling homeowners policies, threatening the residential property market.
  • In response, the state created the California Earthquake Authority (CEA), a public instrumentality that provides basic residential earthquake insurance throughout the state.
  • Residential earthquake insurance in California is purchased in a voluntary market. As of 2015, California’s statewide take-up rate for residential earthquake policies was 10.23 percent.
  • CEA rates are required by law to be actuarially sound and based on the best available science.
  • CEA is neither a federal nor a state taxpayer.
  • CEA’s enabling statute sanctions expenditure of certain CEA funds on (residential) earthquake-loss retrofit projects.
  • The central tenets of the publicly managed CEA—autonomy, freedom to participate in markets, and financial and actuarial soundness—have contributed to the program’s success and should be transferable and useful in other contexts and other programs.