When Do These Changes Begin?
These policy option changes went into effect for new policies written on or after August 1, 2023.
For current customers, the policy option changes will take effect at the next policy renewal date after November 1, 2023.
What will Stay the Same?
Although CEA is lowering some of our optional policy limits, our offerings will always remain at or above the minimum required by California state law.
CEA will continue to offer financial incentives to encourage retrofitting older, more vulnerable homes. This includes a mitigation discount of up to 25% for a code-compliant retrofit of a qualifying older home.
CEA residential earthquake insurance policies will continue to:
- Provide coverage for the costs to rebuild or repair a home following a damaging earthquake,
- Provide coverage for personal property,
- Provide coverage for additional living expenses if you cannot live in your home due to earthquake damage. (This is referred to in our policy as “Loss of Use”).
CEA policy limits that will not change:
- CEA will continue to provide coverage for home repair or rebuilding costs, matching the Coverage A amount on the companion homeowners or other fire insurance policy. (This is identical to the minimum limit required by state law.)
- CEA will continue to offer options for up to $100,000 for Loss of Use coverage, if policyholders incur costs because they have to relocate temporarily due to earthquake damage. There is still no deductible for this coverage. (This exceeds the minimum limit required by state law of $1,500.)
- CEA will continue to offer options for up to $30,000 in coverage for building code upgrades. (This exceeds the minimum limit required by state law of $10,000.)
What Will Change?
CEA revised coverage offerings will emphasize coverage to repair or rebuild a damaged home while providing additional living expenses for the time the homeowner is forced to live elsewhere while the home is being repaired. CEA will de-emphasize ancillary policy options such as personal property (the contents inside the home).
Policy limits/coverages that CEA are changing:
- Personal Property – Coverage C: Maximum limit of insurance reduced from $200,000 to $25,000. (This lowered limit still exceeds the minimum limit required by state law of $5,000.)
- Deductible Options: We will retain the option to pick a 5%, 10%, 15%, 20%, or 25% deductible for all CEA policies, with two exceptions:
- If a home is valued at over $1 million dollars; and/or
- If the home was built before 1980 on a raised or other* (non-slab) type foundation and is not verified to have been seismically retrofitted.
In both these cases, the lowest available deductible will be 15% (State law only requires that insurers offer a 15% deductible).
Breakable Personal Property and Exterior Masonry Veneer: CEA will eliminate these optional endorsem*nts that provide coverage for these items. (These additional coverages are not required in state law.)
Summary of Changes
| Minimum limit required by state law | Current CEA Options | New Options | |
|---|---|---|---|
| Coverage A – Dwelling | Replacement Cost | Replacement Cost | No Change |
| Coverage C – Personal Property | $5,000 | $200,000 maximum | $25,000 maximum |
| Coverage D – Additional Living Expenses | $1,500 | $100,000 maximum | No Change |
| Mitigation Discount | CEA: 5% All other insurers: None | 25% maximum | No Change |
| Deductible | 15% | 5%, 10%, 15%, 20%, 25% | Eliminate 5% and 10% for policies with $1 million+ Coverage A, and pre-1980 non-retrofitted homes on a raised or other* (non-slab) type foundation Retain 5%, 10%, 15%, 20%, 25% for all others |
| Masonry Veneer | None | Available | Eliminate optional endorsem*nt |
| Breakables | None | Available | Eliminate optional endorsem*nt |
When Will These Changes Affect Me?
If you are one of the policyholders who currently has selected one of the affected policy options, then once the changes have been finalized and an implementation date has been set, you will see your policy option changes at your next policy renewal date.
You should talk to your insurance agent about your existing coverages and your options under our new offerings. You may also use our Premium Calculator to see what works best for your budget. You should also consider coverage from other earthquake insurers. Ask your agent for information on the other California licensed insurance companies that offer earthquake coverage.
Why Are These Changes Needed?
CEA relies extensively on reinsurance (essentially insurance for insurance companies) and similar risk transfer tools to offer all the policy options available today and to maintain robust claim-paying capacity. However, several worldwide events have combined to limit the amount of risk transfer available to CEA, and the cost of the risk transfer that remains has increased significantly.
Extreme weather events driven by climate change (including wildfires, hurricanes, and other windstorms), historically high inflation, the increasing costs of construction, and even the war in Ukraine, combined with CEA’s continued exposure growth, has created unprecedented stress on CEA’s ability to maintain financial strength while avoiding the need for historically large policyholder rate increases.
In an ongoing effort to promote the best interests of its policyholders, CEA has taken several steps to maintain its financial strength and help minimize the need for increasingly steep policyholder rate increases—while maintaining key coverage features focusing on rebuilding the structure of the home with coverage for additional living expenses while that repair work is underway.
Changing our insurance policy options will help offset unprecedented significant premium increases for CEA policyholders in the future, keeping earthquake insurance more affordable for Californians. Several factors have contributed to the need to make changes:
- Due to high levels of inflation, rising reconstruction costs, as well as the increasingly tight reinsurance market, CEA believes that modifying some of the expanded policy limit options it now offers is the best available solution to control costs that are otherwise passed on to its policyholders.
- CEA does not receive any ongoing state or federal funding (unlike many other public natural catastrophe insurance entities).
- While it is important to note that this action does not rule out further rate increases, without this action, CEA policyholders would have seen their premiums rise even more steeply in the future.
What Else Should I Know?
- CEA is a not-for-profit organization and is the largest residential earthquake insurance provider in the United States.
- State law requires CEA to offer a basic earthquake insurance policy. This includes the same dwelling coverage limit used in a home’s underlying residential insurance policy (the reconstruction cost of a home or mobile home), a standard deductible of 15%, $5,000 in personal property coverage, and $1,500 for additional living expenses.
- Over time CEA has expanded its policy limits above and beyond the minimum required by law. However, due to high inflation and a tightening reinsurance market, for our policies to remain affordable CEA finds it necessary to lower some of the optional policy limits it offers.
- CEA continues to encourage policyholders who live in older homes to improve their safety and mitigate earthquake losses by completing a seismic retrofit—work that can usually be completed in a couple of days and can lower a CEA premium by as much as 25%.
- CEA has about 1.1 million policyholders and the financial strength necessary to pay all covered claims that would result from the reoccurrence of an historic earthquake. CEA currently has access to accrued capital, reinsurance, and other funding sources—in total about $20 billion —to pay claims after an earthquake. So, if the Great 1906 San Francisco Earthquake—one of the most significant earthquakes of all time (per USGS)—or the 1994 Northridge earthquake reoccurred today, CEA would be able to cover all policyholder claims.
- Affordable earthquake insurance coverage is an important part of California’s economic stability. It is a valuable tool to help minimize the possibility of residents incurring major financial losses and the potential upheaval and trauma that often accompanies it. CEA continues to make every effort to provide coverage that is as affordable as possible while charging actuarially sound rates.
- You can visit StrengthenMyHouse.com to learn how to prevent costly earthquake damage to your home, protect yourself financially, and other steps to prepare for earthquakes.
What if I don’t like these new coverage choices?
If you have used our Premium Calculator to learn about the choices and their costs, have talked to your agent about your options, and still don’t think CEA has a policy that works for you, you may want to consider looking at coverage available from other earthquake insurance companies. There are insurance companies that offer non-CEA earthquake insurance policies in California that may be more suitable for you and your family.
It never hurts to shop around. What we care most about is that you are protected against earthquake damage and prepared for your future.
Strengthen Your Home
Whatever you decide for your earthquake insurance needs, if you own an older home or a home with earthquake vulnerabilities (such as an unreinforced chimney), we also strongly recommend you consider seismically retrofitting it to make it more resistant to earthquake damage. These projects can sometimes be done in a day or two and are usually pretty inexpensive—especially when compared to the costs of rebuilding a home that has been severely damaged in an earthquake.
CEA policyholders with qualifying older homes that have been properly retrofitted may be eligible for a premium discount of up to 25% on their CEA policy premium.
Learn more about strengthening my home
*An "other" type foundation is any foundation that is not entirely slab foundation or entirely raised foundation, or has more than one foundation type.
