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Chubb, AIG Lower Earthquake Rates in California

Source: BestWire

Posted on 04 Dec 2012 by Neilson

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Lower CA earthquake ratesChubb Insurance and Chartis, once again known as American International Group, have lowered their earthquake insurance rates in California, Insurance Commissioner Dave Jones said.

Chubb Insurance, the eighth-largest writer of earthquake insurance in California, agreed to a 15.46% rate decrease. Chartis, the fifth-largest writer, is lowering its rates by 15%. Both decreases are expected to save consumers $15 million, Jones said.

The average annual premium for Chubbs nearly 7,000 policyholders will drop from $5,940 to $5,021, while Chartis will drop from $7,292 to $6,061.

The premium reductions are based on model updates, which show lower damage estimates. As a result of the new data, the California Department of Insurance sent letters to earthquake insurers asking them to substantiate current rates or make reductions. The California Earthquake Authority, the largest writer of earthquake insurance, cut its rates by 12.5% earlier this year.

Only 12% of California homeowners have earthquake insurance.

Rates are based on various factors, including the year the home was built, construction type, the distance to a fault line and seismic and soil studies. Homeowner insurers are obligated to send out offers of earthquake coverage every other year with policy renewals.

California hasn't been hit with a major quake since 1994. This lack of major catastrophes has helped lower losses for California's insurance companies. Loss statistics in the Pacific region, lead by California, the largest market in the region, are the lowest in the United States in recent years, due in part to a lack of catastrophes.

The Pacific region Washington, Oregon, California, Alaska and Hawaii has an adjusted loss ratio average over the past five years of 49. That's nearly three points lower than the next-best region, New England, and 30 points lower than the highest region, the Midwest, according to BestLink, A.M. Best's online financial system.

From 2010 to 2011, California had the eighth-lowest homeowners premium change in the country. California has an 11-year average adjusted loss ratio of 49.35, according to BestLink. That contrasts with Missouri, one of the larger states in the Midwest, with an average adjusted loss ratio of 87.79 in the same period.

In November, American International Group Inc. renamed several of its businesses, including Chartis, to return to the AIG brand it had attempted to distance itself from after its rescue package during the financial crisis of 2008.

The top five writers of earthquake insurance in California, by 2011 direct premiums written, were the California Earthquake Authority, with a 38% market share; followed by Zurich Financial Services NA Group, with a 8.6% market share; GeoVera U.S. Insurance Group, with a 6.4% market share; Axis Insurance Group, with a 4.9% market share; and American International Group, with a 4.1% market share, according to BestLink, A.M. Best's online financial system.