The Catastrophe Obligation Guarantee Act was introduced in Congress back in 2009.
The bill would authorize the federal government to provide committed loan guarantees to qualified insurance companies, California Earthquake Authority being one. The CEA, commonly known as, is a non-profit catastrophe insurance company that currently insures approximately 70% of earthquake exposure for households in California. The reason this act is so important to the market and to disaster relief associations is with this guarantee the CEA will be able to lower their reinsurance thus being able to pass along the savings to policy holders.
Currently only 12% of households have earthquake insurance – these lower rates plus enhanced benefits will spur more consumers to purchase. All in all, more insured and less uninsured means less of burden on disaster relief associations. Critics say lower rates alone will not accomplish the huge gap that needs to be filled. More awareness – meaning more marketing dollars need to be spent.
“Preventing uninsured losses during a major earthquake affects more than just federal expenditures”, James Dertouzos explained, co-author of this study and director of RAND. He further explains that debt accrued from disaster will have far-reaching economic effects upon households causing the exhaustion of individual savings, losses to loan companies due to wide-spread home mortgage foreclosures, local reduction in real estate values as well as property tax revenue, greater unemployment, reduced income tax revenue, reducing business investment and entrepreneurship. Few of these types of losses would covered by disaster-assistance programs – the state would take a huge hit.
Would all of this actually spur the buying frenzy that needs to happen? The CEO, Glenn Pomeroy says yes, “We strongly believe a federal loan-guarantee program would allow both lower insurance rates and, consistent with points made in the RAND study, much-reduced deductibles and richer product choices as well.”
The biggest threat is the San Andreas Fault line, one of the longest and most active in the world, 9.3 miles deep. There is no doubt about it, California will have another earthquake. With only 12 percent insured there will be huge economical ramifications that will ripple through the nation from this one state alone.