COVERING CATASTROPHIC RISKPosted On: Jan. 28, 1996 12:00 AM CST
THE CALIFORNIA EARTHQUAKE AUTHORITY is closer to achieving its goal of lining up financing for a state-sponsored earthquake insurance program.
As we reported Jan. 22, the CEA has obtained commitments from reinsurers to provide nearly $2 billion worth of protection. This week, on page 3, we report that the facility has settled on the investment product that it intends to sell once the Legislature gives the facility the green light.
The CEA program, which will take over most homeowners earthquake exposures in the state, ultimately aims to have up to $10.5 billion in capital.
What is next to be seen is to what extent the facility is able to attract support from the capital markets. There is much talk today about the convergence of traditional and alternative sources of capacity to fund risks. However, we have yet to see whether the capital markets will step up to the plate and provide the more than $1 billion the facility is counting on from them.
Ultimately, though, the support of reinsurance and capital markets and the state is not enough.
It is the public that needs to contribute more if catastrophic exposures are to be adequately financed. The industry must determine if risks in catastrophe-prone areas are paying a fair rate for the coverage they receive and, if not, convince the public it needs to pay more for the privilege of living on fragile fault zones or in hurricane-prone areas.