A study released November 3, 2010 by the RAND Institute for Civil Justice and Risk Management Solutions (the “Study”) found that the Catastrophe Obligation Guarantee Act (S.886/ H.R.4014) (the “Proposed Legislation”) would only modestly increase insurance coverage for losses resulting from an earthquake in California.  The Study was commissioned by the California Earthquake Authority in order to assess the effectiveness of the Proposed Legislation, which was introduced in Congress in 2009 in an effort to increase the availability and affordability of insurance for catastrophic events, and thus to reduce the amount of disaster assistance required of the federal government following such a catastrophe.  The Proposed Legislation would authorize the federal government to guarantee private market loans to state catastrophe programs in order to help them pay claims following a major disaster.

According to the Study, the Proposed Legislation could substantially reduce earthquake insurance costs, leading to a 13% increase in the number of insureds.  However, the Proposed Legislation would only modestly decrease uninsured losses because a large portion of earthquake losses are expected to fall below policy deductibles.  To increase earthquake insurance coverage, the Study recommends pursuing other options, such as increasing public education and marketing regarding the need for such insurance and offering new earthquake insurance products that provide more attractive options for consumers.

To view the RAND Institute press release, which contains a link to the Study, click here.  To view the Proposed Legislation, click here.