Closing the Protection Gap from Both Directions Insurance + - - PowerPoint PPT Presentation

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Closing the Protection Gap from Both Directions Insurance + - - PowerPoint PPT Presentation

Mar 28, 2023 231 likes •435 views

Closing the Protection Gap from Both Directions Insurance + Mitigation 1 Residential Earthquake Insurance 1.1 Million Policyholders Publicly Managed/Privately Financed Not for Profit Residential Earthquake Mitigation Grants

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Closing the Protection Gap from Both Directions

Insurance + Mitigation

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Residential Earthquake Insurance

  • 1.1 Million Policyholders
  • Publicly Managed/Privately Financed
  • Not for Profit

Residential Earthquake Mitigation Grants

  • Pre-1980 Homes/$3,000 Grant
  • Retrofits to date: 11,000
  • 2020 Goal: 4,400 Retrofits

California Wildfire Fund

  • Coverage for Wildfires Caused by Investor Utilities
  • $21 Billion Fund
  • Overseen by California Catastrophe Response Council
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AG

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Ut Utilities ilities $1 $10. 0.5 5 B Ratepa epayer ers s $1 $10. 0.5 5 B

Ratepayer Surcharge

+

SoCal Edison SDG&E PG&E

Calif iforni

  • rnia

a Wi Wildf dfir ire e Fund

$2 $21 1 B

Coverage for Wildfires Caused by Investor Owned Utilities

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Narrowing the Protection Gap: Insurance

More Californians Choosing CEA

754,000 775,000 779,000 800,000 811,000 820,000 841,000 841,000 865,000 879,000 931,000 1,021,000 1,050,000 1,111,000 1,119,000 700,000 750,000 800,000 850,000 900,000 950,000 1,000,000 1,050,000 1,100,000 1,150,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Organic New Participating Insurers

2006–2015 average annual increase: 6,700 2016: 52,000 2017: 90,000 2018: 29,000 2019: 61,000 2020: 8,000*

*as of April 2020

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Earthquake Vulnerabilities

Narrowing the Protection Gap: Mitigation

Cripple Wall Living-space-over garage Hillside House Chimney

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Cripple Wall

Narrowing the Protection Gap: Mitigation

20 2014 S 4 Sou

  • uth

th Nap apa M6 a M6.0 .0 Ea Earth thqua uake e da dama mage House shifted and dropped Cripple wall collapsed

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EBB Retrofit: Cripple Wall

Narrowing the Protection Gap: Mitigation

Several eral step eps to the ho e house Crawl wl spa pace e ven ents and d access cess do door

  • r
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Cripple Wall Retrofit: Framing Clips, Foundation Plates, and Plywood

Earthquake Brace + Bolt

Crawlspace Be Before Retrofit

Plywood

  • od brace

ace

Crawlspace After er Retrofit

Foundat dation ion pl plate

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EarthquakeBraceBolt.com

11,000 Retrofits Over Last 5 Years Grant recipients are not required to be a CEA policyholder CEA policyholders may be eligible for up to a 25% premium discount.

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PROBLEM

State funded mitigation grants potentially subject to federal taxation.

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State Funded Mitigation Programs

California Alabama North Carolina South Carolina

Safe Home Program

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H.R. 5494: Catastrophe Loss Mitigation Incentive and Tax Parity Act of 2019

Establishes tax exempt status for grants from state-funded residential mitigation programs for earthquake, windstorm and wildfire.

Spon

  • nso

sor:

Goal: Pass H.R. 5494 in 2020

  • Rep. Mike Thompson (D, CA)

Co Co-Spon Sponso sors: s: California

  • Rep. Aguilar (D)
  • Rep. Bera (D)
  • Rep. Brownley (D)
  • Rep. Calvert (R)
  • Rep. Chu (D)
  • Rep. Cisneros (D)
  • Rep. Cook (R)

Alabama

  • Rep. Byrne (R)
  • Rep. Rogers (R)
  • Rep. Sewell (D)

South Carolina

  • Rep. Rice (R)

North Carolina

  • Rep. Rouzer (R)

Wisconsin

  • Rep. Moore (D)
  • Rep. Garamendi (D)
  • Rep. Gomez (D)
  • Rep. Panetta (D)
  • Rep. Sanchez (D)
  • Rep. Speier (D)
  • Rep. Swalwell (D)
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OPPORTUNITY

Enable CEA to provide approximately $50 million per year for natural catastrophe mitigation in California.

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Concept: Funding for Mitigation

1 in 50 2% $5.2 B 1 in 100 1% $8.6 B 1 in 150 .66% $11 B 1 in 200 .50% $13 B 1 in 250 .40% $14.9 B 1 in 300 .33% $16.3 B 1 in 350 .28% $17.7 B 1 in 400 .25% $19 B

CEA Return Period Probability 2020 Estimated CEA Loss Reoccurrence of Previous Earthquakes 2020 Claim Paying Capacity 1 in 400 Return Period

1 in 10 10% $630 M

1868 Hayward $6 B 1994 Northridge $8 B 1906 San Francisco $13 B >$1.3 B 1989 Loma Prieta 2014 Napa 2019 Ridgecrest

Capital $6 B Reinsurance $9.2 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL

$19 B

$1.7 B

CEA Claim Paying Capacity

Rating Agencies require CEA to meet an extremely conservative benchmark: enough claim paying capability for a 1 in 400 year return period. For 2020, CEA must have access to $19 billion to pay for potential claims. The probability of incurring this much in covered claims is ¼ of 1%. To meet this benchmark this year, CEA will spend nearly $400 million in exchange for $9.2 billion of claim paying capacity. Since opening in 1996, CEA has spent $5 billion for its reinsurance protection. Because California has not been hit by a catastrophic earthquake during that time, reinsurers have paid a total of $250,000 in reinsurance claims over that same period.

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Concept: Funding for Mitigation

CEA Return Period Probability 2020 Estimated CEA Loss Reoccurrence of Previous Earthquakes 2020 Claim Paying Capacity 1 in 400 Return Period Concept

1868 Hayward $6 B 1994 Northridge $8 B 1906 San Francisco $13 B

Capital $6 B Reinsurance $9.2 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B

>$1.3 B 1989 Loma Prieta 2014 Napa 2019 Ridgecrest

1 in 50 2% $5.2 B 1 in 100 1% $8.6 B 1 in 150 .66% $11 B 1 in 200 .50% $13 B 1 in 250 .40% $14.9 B 1 in 300 .33% $16.3 B 1 in 350 .28% $17.7 B 1 in 400 .25% $19 B 1 in 10 10% $630 M Capital $6 B Reinsurance $6.4 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.8 B

$19 B $19 B

Establish a new layer of a contingent capital, funded by a post-event assessment (maximum: 2%) on most property and casualty lines.

Exclud uding: ing: Work rk Comp, p, Med Mal l and Earth thqua uake

Potential Assessment %

Homeowners Insurance

Average Annual Premium: $1,000 Temporary Assessment $

Probability of any assessment being triggered is less than 1/

3

  • f 1%.

In exchange for the Contingent Capital layer approximately $50 M/year will be invested in earthquake and wildfire mitigation.

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Concept: Funding for Mitigation

CEA Return Period Probability 2020 Estimated CEA Loss Reoccurrence of Previous Earthquakes 2020 Claim Paying Capacity 1 in 400 Return Period Concept Potential Assessment % 1%

1868 Hayward $6 B 1994 Northridge $8 B 1906 San Francisco $13 B >$1.3 B 1989 Loma Prieta 2014 Napa 2019 Ridgecrest

Capital $6 B Reinsurance $9.2 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B 1 in 50 2% $5.2 B 1 in 100 1% $8.6 B 1 in 150 .66% $11 B 1 in 200 .50% $13 B 1 in 250 .40% $14.9 B 1 in 300 .33% $16.3 B 1 in 350 .28% $17.7 B 1 in 400 .25% $19 B 1 in 10 10% $630 M Capital $6 B Reinsurance $6.4 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.8 B

$19 B $19 B

0% $1.67 $20

Homeowners Insurance

Average Annual Premium: $1,000 Temporary Assessment $ $.83 $10

A reoccurrence of any of the most damaging earthquakes in California history would not trigger a post-event assessment. Probability of a maximum assessment is ¼ of 1%.

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CEA Return Period Probability 2020 Estimated CEA Loss Reoccurrence of Previous Earthquakes 2020 Claim Paying Capacity 1 in 400 Return Period Concept Potential Assessment %

Homeowners Insurance

Average Annual Premium: $1,100

1868 Hayward $6 B 1994 Northridge $8 B 1906 San Francisco $13 B >$1.3 B 1989 Loma Prieta 2014 Napa 2019 Ridgecrest

Capital $6 B Reinsurance $9.2 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B 1 in 50 2% $5.2 B 1 in 100 1% $8.6 B 1 in 150 .66% $11 B 1 in 200 .50% $13 B 1 in 250 .40% $14.9 B 1 in 300 .33% $16.3 B 1 in 350 .28% $17.7 B 1 in 400 .25% $19 B 1 in 10 10% $630 M

0% 1%

Maximum Assessment

Annually: $11.00 Monthly: $0.91

Capital $6 B Reinsurance $6.4 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.8 B

$19 B $19 B

Concept: Funding for Mitigation

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CEA Return Period Probability 2020 Estimated CEA Loss Reoccurrence of Previous Earthquakes 2020 Claim Paying Capacity 1 in 400 Return Period Concept Potential Assessment %

Auto Insurance

Average Annual Premium: $1200

1868 Hayward $6 B 1994 Northridge $8 B 1906 San Francisco $13 B >$1.3 B 1989 Loma Prieta 2014 Napa 2019 Ridgecrest

Capital $6 B Reinsurance $9.2 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B 1 in 50 2% $5.2 B 1 in 100 1% $8.6 B 1 in 150 .66% $11 B 1 in 200 .50% $13 B 1 in 250 .40% $14.9 B 1 in 300 .33% $16.3 B 1 in 350 .28% $17.7 B 1 in 400 .25% $19 B 1 in 10 10% $630 M

0% 1%

Maximum Assessment

Annually: $12.00 Monthly: $1.00

Capital $6 B Reinsurance $6.4 B

Bond Proceeds $1.1 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.8 B

Concept: Funding for Mitigation

$19 B $19 B 19 19

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Projection: Assuming 7% Exposure Growth

Capital $6 B Reinsurance $8.9 B

Bond Proceeds $1.4 B CEA Surcharge $1 B

IAL $1.7 B

$19B

Capital $6 B Reinsurance $6.1 B

Bond Proceeds $1.4 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.8 B

$19B

Capital $6.3 B Reinsurance $7.1 B

Bond Proceeds $1.4 B CEA Surcharge $1 B

IAL $1.7 B Contingent Capital $2.9 B

$20.4B

Capital $6.6 B Reinsurance $8.5 B

Bond Proceeds $1.4 B CEA Surcharge $1 B

IAL $1.4 B Contingent Capital $3 B

$21.9B

Capital $6.8 B Reinsurance $9.9 B

Bond Proceeds $1.4 B CEA Surcharge $1 B

IAL $1.2 B Contingent Capital $3.14 B

$23.4B 2020 20 Year r 1 Year r 2 Year r 3 Year r 4

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