LOS ANGELES -- A California insurance earthquake fund that once held the promise of securing bond sales may be eliminated altogether unless supporters sway critics in the state Legislature.
The state Senate late last month rejected a bill to abolish the California Residential Earthquake Recovery Fund, which was created in 1990 to help pay for home owners' earthquake damage that is not covered because of high deductibles imposed on such coverage by private insurance carriers.
But critics of the fund are expected to request another vote on the repeal bill.
The insurance plan imposes a yearly surcharge on home owners, ranging from $12 to $60, and provides coverage of up to $15,000.
State officials, however, have squabbled for months over how to correct perceived flaws in the program, which is the first of its kind in the nation.
John Garamendi, the state's insurance commissioner, has argued that the earthquake fund is not actuarially sound. He fears, for example, that large claims in the early years of the program would deplete all the collected funds and possibly force the state to pay claimants out of general revenues.
State senators who supported creation of the fund sponsored bills to address such concern. Those bills would have raised the annual surcharge slightly; provided an enforcement mechanism to discipline home owners who did not pay the premium; and standardized deductibles under the state program.
But the Senate's insurance committee defeated those bills. And state Sen. Art Torres, D-Los Angeles, and the committee's chairman, believes the program should be abolished.
"It was really disturbing to get all the issues finally worked out to cure defects in the program and then see the insurance committee defeat the proposals," said Shannon Hood, chief of staff for state Sen. Frank Hill, R-Whittier, a co-author of legislation that established the fund.
Ms. Hood noted that the insurance industry has never favored the program, partly because insurers disliked having to collect the surcharges. Accordingly, she predicted, "we'll never see [the program] again if legislators abolish it."
State officials at one time discussed the possibility of selling a large bond issue, secured by the surcharge, to provide an immediate pool of funds for addressing claims in the early years of the program. The surcharge, which may raise about $300 million annually under the current premium structure, would cover debt service on a bond issue.
But Ms. Hood said the negative publicity generated by some state officials' concern over the fund, as well as the fact that it is an unproven brand new program, raised doubts about the marketability of bonds at the early stages of the plan.
She added that debt sales might make sense once there are proven participation rates in the program.
