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In January 1994, a 6.7-magnitude earthquake struck California’s San Fernando Valley.  It was the costliest earthquake in U.S. history and occurred on a previously undocumented fault.

Prior to Northridge, policymakers and insurance companies had dramatically underestimated the potential losses that would be caused even by moderate earthquakes, and California earthquake insurance premiums did not reflect the risk. Insurers and consumer groups quickly became aware that residential earthquake insurers were overexposed and would quickly exhaust their claims-paying resources if another significant earthquake occurred. 

By January 1995, fearing potential insolvency from another huge earthquake, insurers representing about 93% of the homeowners insurance market in California severely restricted—or refused to write altogether—new homeowners policies because of the law that they also offer earthquake insurance. This triggered a crisis that by mid-1996 seriously threatened the vitality of the state's housing market.

In 1995, the California Legislature created a reduced-coverage earthquake insurance policy designed to protect a policyholder’s dwelling while excluding coverage for costly non-essential items such as swimming pools, patios, and detached structures. This reduced level of catastrophe coverage became known as the “mini-policy”; insurance companies could meet the earthquake-insurance mandate by offering this no-frills, basic coverage designed to restore habitability of the structure. The intent was to enable insurers, over-exposed to catastrophic-earthquake losses, to retain more policyholders at the basic level of coverage, rather than fewer at a higher level.

In 1996, the California Legislature established the California Earthquake Authority as a publicly managed, largely privately funded entity. Companies that sell residential property insurance in California can choose to offer their own privately funded earthquake insurance product or they can become a participating insurance company of the CEA. Only participating insurance companies can offer CEA earthquake-insurance policies.

To date, companies that sell over two-thirds of the residential property insurance in the state have chosen to become CEA participating companies, making it one of the largest providers of residential earthquake insurance in the world. The CEA is financially sound, consistently receives excellent financial ratings, and is an international model for catastrophe insurance. The CEA remains dedicated to continual improvement and innovation, to provide Californians with coverage options that best meet their  needs.