In short, insurance companies, which make about $8 billion profit annually on California car insurance and profit almost $6 billion more on homeowner and other property policies, wanted to have virtually all their risks removed.
This, even though insurance by definition is the business of risk. They didn't care how exposed they left both homeowners and the federal government, which often offers assistance in major disasters, as it did after the big temblors of 1989 and 1994.
The flaws of the CEA are myriad, and each was calculated to benefit the big insurance companies. Here are a few:
l Deductibles in its policies are set at 15 percent of damages, 50 percent higher than in most policies issued before the '94 Northridge quake. This means almost no one can collect a significant amount unless a home or business is destroyed. In the wake of last September's 5.2-magnitude Napa Valley earthquake, 172 policy-holders filed claims with the CEA. But after 125 claims were settled, less than $150,000 had been paid out — an average of little more than $1,000 per claim. By contrast, the federal Small Business Administration had made more than $10 million in low-interest post-quake loans. Taken together, these numbers prove there was significant damage, but high deductibles either precluded large insurance pay-outs or they deterred most property owners from even buying earthquake coverage.
l Premiums are set on the basis of proximity to known faults, when most major California quakes of the last 50 years came on previously undetected faults.
l Insurance companies have almost no obligation to pay out anything if the pot of money collected by the CEA should be exhausted after a major quake.
So today's California earthquake insurance is the product of a sweetheart Quackenbush deal with campaign donors that has much more potential for hurting the public than the other questionable deals that brought Quackenbush down last summer. That was when reporters and legislators exposed his arrangements to set insurance company fines at token levels in exchange for contributions to his favorite charities.
The CEA plainly needs fixing and at least one member of its three-person governing board is ready to act. That's state Treasurer Phil Angelides, who urged state legislators to "make review and reform of the CEA a key priority" this year.
The urgency is also plain. When the quake struck Napa, less than 10 percent of all area property owners had any coverage. That's in keeping with statewide averages. Before insurance companies pulled back many of their policies after the '94 quake, more than 20 percent of state homeowners were covered, itself a puny number but not nearly as bad as today's.
Most homeowners realize CEA policies are both expensive and virtually worthless, because their high deductibles stick homeowners with the cost of all but utterly catastrophic repair bills. So they don't waste their money.
But a fix is available to the CEA, whose policies are the only quake coverage available to the vast majority of Californians.
That would be choice. Lower deductibles must be made available in exchange for higher premiums. That's the only way to sell a decent number of new policies and prevent a financial nightmare when the next large temblor hits.
Legislators also need to fix the pricing scheme developed by a team of Quackenbush's pet seismologists. As long as no one can predict where earthquakes will strike, there's no rational reason for charging different premiums in fault-ridden areas.
And insurance companies have to be made liable for more assistance if and when the CEA runs out of money. That's a fair price to pay for the huge profits they pull in from the other types of policies they sell here. Doing all that would end the sweetheart deal Quackenbush gave to an industry that had devolved into little more than a bunch of common blackmailers and political fixers by the time he took office and slavishly set about giving them whatever they wanted.