CEA policy uptake spikes after Ridgecrest California earthquakes

The California Earthquake Authority (CEA) has seen a significant increase in earthquake insurance policy uptake following the recent earthquakes in Ridgecrest, adding the second most policies in a single month ever.

The CEA said that it added 23,861 earthquake insurance policies in July 2019, which this spike in policy uptake driven by the magnitude 6.4 and 7.1 earthquakes, and a number of aftershocks, that struck the Ridgecrest area of the Mojave Desert on unnamed faults that month.

It’s the CEA’s second-largest monthly net increase in policies in the insurers 23 year history.

The data takes into account new purchases and insurance policies renewed during July, less any canceled policies during the month, the CEA explained.

For comparison, the CEA only gained 6,289 policies for the first six months of 2019.

As of the end of July, the CEA’s policy count has now risen to 1,080,986.

Rising policy numbers means more California earthquake risk in the CEA pool, of course, which also suggests rising reinsurance needs for the Authority as well.

“Large, damaging earthquakes like the ones that recently struck Ridgecrest don’t happen very often,” commented CEA CEO Glenn Pomeroy. “But when they do, they’re a powerful reminder that earthquakes can happen at any time, anywhere in California, and that we need to get better prepared to recover. If the Ridgecrest earthquakes had occurred under a more densely populated area, such as Los Angeles, the outcome could have been a lot worse for California.”

While the earthquakes are close to home for Californians and so it’s not surprising that policy numbers increased, it’s a further sign of growing acceptance that disasters occur and insurance is one of the best ways to insulate against their financial impacts.

Previously, the CEA’s best ever month of policy uptake was in September 2017, following hurricane Harvey and Irma, earthquakes in Mexico and wildfires in California, which saw CEA’s policies increase by nearly 26,000 in the month.

It suggests that when people see the impacts of catastrophes and disaster events they are reminded of their own exposure to them and of the benefits of insurance protection to cushion any shocks.

This does appear to be a growing trend, with people increasingly aware of the threats they face from climate change as well as other natural disaster or weather events, which could increase insurance uptake over time.

Reinsurance capacity remains abundant to support the growing CEA risk pool, of course.

Previously the CEA has said that its use of reinsurance and risk transfer capacity will grow in the coming years.

As we’ve explained previously, the CEA said that even based on a modest rate of projected premium growth, it would need to increase its claim-paying capacity from $17 billion to as much as $48 billion of financing and risk transfer or reinsurance.

Increasing policy counts are the main driver, with the CEA expecting continued growth of its overall exposure and so an increasing need for risk financing that.

The CEA said that as many as 2,000 of its policyholders were exposed to the Ridgecrest earthquakes, with 462 damage claims from participating insurance companies by this week.

While the insurance and reinsurance market impact from these specific quakes is minor, the potential for a larger loss from California is clear. Which makes the CEA’s policies all the more important for the states residents, as it helps to keep insurance costs more efficient through pooling the risk and use of efficient reinsurance capital.