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 • 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 2
AG 3
Coverage for Wildfires Caused by Investor Owned Utilities + Ratepa epayer ers s $1 $10. 0.5 5 B Ut Utilities ilities $1 $10. 0.5 5 B SDG&E Calif iforni ornia a Wi Wildf dfir ire e Fund Ratepayer SoCal Edison Surcharge $2 $21 1 B PG&E 4
Narrowing the Protection Gap: Insurance More Californians Choosing CEA 2006 – 2015 average annual increase: 6,700 1,150,000 1,119,000 1,111,000 2016: 52,000 1,100,000 1,050,000 1,050,000 2017: 90,000 1,021,000 1,000,000 2018: 29,000 950,000 931,000 2019: 61,000 900,000 879,000 2020: 8,000 * 865,000 * as of April 2020 841,000 841,000 850,000 820,000 811,000 800,000 800,000 775,000 779,000 754,000 750,000 700,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Organic New Participating Insurers 5
Narrowing the Protection Gap: Mitigation Earthquake Vulnerabilities Cripple Wall Living-space-over garage Hillside House Chimney 6
Narrowing the Protection Gap: Mitigation Cripple Wall Cripple wall collapsed House shifted and dropped 20 2014 S 4 Sou outh th Nap apa M6 a M6.0 .0 Ea Earth thqua uake e da dama mage 7
Narrowing the Protection Gap: Mitigation EBB Retrofit: Cripple Wall Crawl wl spa pace e ven ents and d access cess do door or Several eral step eps to the ho e house 8
Earthquake Brace + Bolt Cripple Wall Retrofit: Framing Clips, Foundation Plates, and Plywood Plywood ood brace ace Foundat dation ion pl plate Crawlspace After er Retrofit Crawlspace Be Before Retrofit 9
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. 10 10
State funded mitigation grants PROBLEM potentially subject to federal taxation. 11 11
State Funded Mitigation Programs Alabama California South Carolina North Carolina Safe Home Program 12 12
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 onso sor: Rep. Mike Thompson (D, CA) California Alabama South Carolina Wisconsin Co Co-Spon Sponso sors: s: Rep. Aguilar (D) Rep. Byrne (R) Rep. Rice (R) Rep. Garamendi (D) Rep. Moore (D) Rep. Bera (D) Rep. Rogers (R) Rep. Gomez (D) North Carolina Rep. Brownley (D) Rep. Sewell (D) Rep. Panetta (D) Rep. Rouzer (R) Rep. Calvert (R) Rep. Sanchez (D) Rep. Chu (D) Rep. Speier (D) Rep. Cisneros (D) Rep. Swalwell (D) Rep. Cook (R) Goal: Pass H.R. 5494 in 2020 13 13
Enable CEA to provide approximately $50 million per OPPORTUNITY year for natural catastrophe mitigation in California. 14 14
Concept: Funding for Mitigation 2020 Reoccurrence of 2020 CEA Probability Estimated Previous Claim Paying Capacity Return Period CEA Loss Earthquakes 1 in 400 Return Period $19 B 1 in 400 .25% $19 B CEA Claim Paying Capacity IAL $1.7 B 1 in 350 .28% $17.7 B CEA Surcharge $1 B 1 in 300 .33% $16.3 B Rating Agencies require CEA to meet an extremely Bond Proceeds $1.1 B conservative benchmark: enough claim paying 1 in 250 .40% $14.9 B capability for a 1 in 400 year return period. 1906 San Francisco 1 in 200 .50% $13 B $13 B 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%. 1 in 150 .66% $11 B Reinsurance $9.2 B To meet this benchmark this year, CEA will spend 1994 Northridge 1 in 100 1% $8.6 B nearly $400 million in exchange for $9.2 billion of $8 B claim paying capacity. 1868 Hayward $6 B Since opening in 1996, CEA has spent $5 billion for its 1 in 50 2% $5.2 B reinsurance protection. Because California has not been hit by a catastrophic earthquake during that Capital time, reinsurers have paid a total of $250,000 in $6 B reinsurance claims over that same period. >$1.3 B 1989 Loma Prieta 2014 Napa 1 in 10 10% $630 M 2019 Ridgecrest 15 15
Concept: Funding for Mitigation Homeowners Insurance 2020 Reoccurrence of 2020 Potential CEA Probability Estimated Previous Claim Paying Capacity Concept Assessment Average Annual Premium: $1,000 Return Period CEA Loss Earthquakes 1 in 400 Return Period % Temporary Assessment $ $19 B $19 B 1 in 400 .25% $19 B Establish a new layer of a contingent IAL $1.7 B Contingent capital, funded by a post-event Capital 1 in 350 .28% $17.7 B assessment (maximum: 2%) on most $2.8 B CEA Surcharge $1 B property and casualty lines. 1 in 300 .33% $16.3 B Bond Proceeds $1.1 B IAL $1.7 B Exclud uding: ing: Work rk Comp, p, Med Mal l and 1 in 250 .40% $14.9 B Earth thqua uake CEA Surcharge $1 B 1906 San Francisco 1 in 200 .50% $13 B $13 B Bond Proceeds $1.1 B Probability of any assessment being triggered is less than 1 / of 1%. 3 1 in 150 .66% $11 B Reinsurance $9.2 B In exchange for the Contingent Capital Reinsurance layer approximately $50 M/year 1994 $6.4 B Northridge 1 in 100 1% $8.6 B will be invested in earthquake and $8 B wildfire mitigation. 1868 Hayward $6 B 1 in 50 2% $5.2 B Capital Capital $6 B $6 B >$1.3 B 1989 Loma Prieta 2014 Napa 1 in 10 10% $630 M 2019 Ridgecrest 16 16
Concept: Funding for Mitigation Homeowners Insurance 2020 Reoccurrence of 2020 Potential CEA Probability Estimated Previous Claim Paying Capacity Concept Assessment Average Annual Premium: $1,000 Return Period CEA Loss Earthquakes 1 in 400 Return Period % Temporary Assessment $ $19 B $19 B 1% $1.67 $20 1 in 400 .25% $19 B Probability of a maximum IAL $1.7 B Contingent Capital assessment is ¼ of 1%. 1 in 350 .28% $17.7 B $2.8 B CEA Surcharge $1 B 0% $.83 $10 1 in 300 .33% $16.3 B Bond Proceeds $1.1 B IAL $1.7 B 1 in 250 .40% $14.9 B CEA Surcharge $1 B 1906 San Francisco 1 in 200 .50% $13 B $13 B Bond Proceeds $1.1 B 1 in 150 .66% $11 B Reinsurance $9.2 B A reoccurrence of any of the Reinsurance most damaging earthquakes in 1994 $6.4 B Northridge California history would not 1 in 100 1% $8.6 B $8 B trigger a post-event assessment. 1868 Hayward $6 B 1 in 50 2% $5.2 B Capital Capital $6 B $6 B >$1.3 B 1989 Loma Prieta 2014 Napa 1 in 10 10% $630 M 2019 Ridgecrest 17 17
Concept: Funding for Mitigation 2020 Reoccurrence of 2020 Potential Homeowners Insurance CEA Probability Estimated Previous Claim Paying Capacity Concept Assessment Return Period Average Annual Premium: $1,100 CEA Loss Earthquakes 1 in 400 Return Period % $19 B $19 B 1% 1 in 400 .25% $19 B Maximum Assessment IAL $1.7 B Contingent Annually: $11.00 Capital 1 in 350 .28% $17.7 B $2.8 B Monthly: $0.91 CEA Surcharge $1 B 0% 1 in 300 .33% $16.3 B Bond Proceeds $1.1 B IAL $1.7 B 1 in 250 .40% $14.9 B CEA Surcharge $1 B 1906 San Francisco 1 in 200 .50% $13 B $13 B Bond Proceeds $1.1 B 1 in 150 .66% $11 B Reinsurance $9.2 B Reinsurance 1994 $6.4 B Northridge 1 in 100 1% $8.6 B $8 B 1868 Hayward $6 B 1 in 50 2% $5.2 B Capital Capital $6 B $6 B >$1.3 B 1989 Loma Prieta 2014 Napa 1 in 10 10% $630 M 2019 Ridgecrest 18 18
Concept: Funding for Mitigation 2020 Reoccurrence of 2020 Potential Auto Insurance CEA Probability Estimated Previous Claim Paying Capacity Concept Assessment Return Period Average Annual Premium: $1200 CEA Loss Earthquakes 1 in 400 Return Period % $19 B $19 B 1% 1 in 400 .25% $19 B Maximum Assessment IAL $1.7 B Contingent Annually: $12.00 Capital 1 in 350 .28% $17.7 B $2.8 B Monthly: $1.00 CEA Surcharge $1 B 0% 1 in 300 .33% $16.3 B Bond Proceeds $1.1 B IAL $1.7 B 1 in 250 .40% $14.9 B CEA Surcharge $1 B 1906 San Francisco 1 in 200 .50% $13 B $13 B Bond Proceeds $1.1 B 1 in 150 .66% $11 B Reinsurance $9.2 B Reinsurance 1994 $6.4 B Northridge 1 in 100 1% $8.6 B $8 B 1868 Hayward $6 B 1 in 50 2% $5.2 B Capital Capital $6 B $6 B >$1.3 B 1989 Loma Prieta 2014 Napa 1 in 10 10% $630 M 2019 Ridgecrest 19 19
Projection: Assuming 7% Exposure Growth 2020 20 Year r 1 Year r 2 Year r 3 Year r 4 Contingent Capital Contingent $3.14 B Capital Contingent $3 B IAL $1.2 B Capital CEA Surcharge $1 B Contingent $2.9 B IAL $1.4 B IAL $1.7 B Capital Bond Proceeds $1.4 B CEA Surcharge $1 B $2.8 B CEA Surcharge $1 B IAL $1.7 B Bond Proceeds $1.4 B Bond Proceeds $1.4 B IAL $1.7 B CEA Surcharge $1 B Bond Proceeds $1.4 B CEA Surcharge $1 B Bond Proceeds $1.4 B Reinsurance $9.9 B Reinsurance Reinsurance $8.5 B Reinsurance $8.9 B $7.1 B Reinsurance $6.1 B Capital Capital Capital Capital Capital $6.8 B $6.6 B $6.3 B $6 B $6 B $19B $19B $20.4B $21.9B $23.4B 20 20
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