Catastrophe Risk

California Earthquake Insurer’s Retrofit Plan Will Strengthen Buildings and Reduce Premiums

California intends to have its retrofit proposals adopted into building codes that could boost building resiliency nationwide.
By: | August 30, 2018 • 8 min read

The California Earthquake Authority (CEA) is set to publish a document incorporating the latest risk modeling for retrofitting the most vulnerable types of structures to gird them against quake damage.


“We are creating this document as a pre-standard,” said Janiele Maffei, chief mitigation officer for CEA. “It is written in building-code language with the intent to have it adopted across the country.”

Los Angeles, San Francisco, Portland, Vancouver and Anchorage are all on or near the “Ring of Fire,” a girdle of subduction zones around the Pacific Ocean where some crustal plates are being driven under others. That causes volcanoes and earthquakes.

All of those cities, and dozens more, face similar hazards but address them in different ways. Los Angeles and San Francisco have mandated retrofits. Local reports in the Seattle area detail how similar efforts have gotten bogged down in socio-economic, tax and land-use issues.

Maiclaire Bolton-Smith, seismologist and senior leader of research for CoreLogic, explained there are areas of the Oregon and Washington coasts that have a very high earthquake hazard but have relatively low risk, because they are essentially wild lands with few structures or population.

Janiele Maffei, chief mitigation officer, California Earthquake Authority

Seismic retrofitting is adding structural reinforcement to buildings to make them better able to withstand earthquakes. It has emerged as economical and effective risk mitigation, especially for older homes and other small structures that were built to code decades ago but would not be compliant if built today.

The most vulnerable type of structure throughout California is one with a ‘soft story,’ a garage or retail space on the ground floor and living or office space above. The grim toll of the 1994 Northridge Quake and the 1989 Loma Prieta Quake graphically demonstrated that those open, unsupported soft stories collapse easily.

The second type of vulnerable structure in California is the hillside or hilltop home. The third, which is most common in the Los Angles area, is the ‘cripple wall,’ the short vertical box, usually made of wood, that encloses a crawl space under the first floor.

“The low-hanging fruit is the cripple wall,” said Maffei. “In an earthquake, those tend to topple and the house slides off its foundation. Often that results in a total loss for insurance purposes, because even if the rest of the house is not badly damaged, it still has to be lifted back onto the foundation and then repaired and reconnected.”

That can take months, during which loss-of-use coverage is in effect.

Using Data from Updated Quake Models

Maffei explained that building codes from the late ’70s added bolt-and-brace rules for all new cripple walls but did not mandate retrofitting. Since its inception, CEA has offered a five percent discount to homeowners that make seismic retrofits, which homeowners verify themselves. Under the authority’s annual rate and form filing for 2019, it has sought to replace that discount with a 15 to 20 percent discount for retrofits done and verified by certified contractors.

“Walking around San Francisco, it is easy to see the enormity of the challenge with soft stories and hillside structures,” said Andrew O’Donnell, senior engineer at risk-modeling firm AIR Worldwide. “My job as a researcher and our job as risk modellers is to allow our clients, like CEA, to draw their own conclusions based on the science and the engineering we present.”


He noted there is danger in the apparent lack of danger.

“The last major event was Northridge, more than 20 years ago. That means a whole generation of homeowners have never lived through a major event. The biggest challenge is risk communication. To them, it is abstract. To us, it is very real,” he said.

In July 2017, AIR released a new catastrophe risk model to be used by insurers and government agencies.

“It was the most comprehensive update ever,” said O’Donnell. It included detailed mapping of the Uniform California Earthquake Rupture Forecast and the most recent hazard maps from the U.S. Geological Survey (USGS).

 “The last major event was Northridge, more than 20 years ago. That means a whole generation of homeowners have never lived through a major event. The biggest challenge is risk communication. To them, it is abstract. To us, it is very real.” — Andrew O’Donnell, senior engineer, AIR Worldwide

CEA is working with the Pacific Earthquake Engineering Research Center, which is affiliated with the University of California at Berkeley, to quantify how much reduction in damage there is with a result of brace-and-bolt retrofitting.

“We are doing materials testing and computer analysis to generate damage functions that we are going to give to our three risk-modeling partners, AIR, CoreLogic, and RMS,” said Maffei. We expect the reduction in premium could be more like 25 percent. That work started last year, and we expect to have results next year.”

In terms of retrofitting, “different local tectonic environments create different types of hazards. Hazards vary with setting,” said Keith Knudsen, deputy director of the USGS’s Earthquake Science Center. “It matters how far away the earthquake is, what type and magnitude it is, what type of construction and foundation a structure has, and what type of soil and rock are under the foundation.”

Maffei noted new data for the models, including age, number of stories, and whether there is a basement or crawl space, was not readily available from carriers writing traditional homeowner policies, because the primary concern was fire, not earthquake.

It is important to remember in all of this that “we are getting better at building,” said Bolton-Smith.

“Year on year, codes get better. Every six years or so the USGS issues new seismic hazard maps. We transform those hazard maps into risk vulnerability models.

“The insurance and reinsurance sector can take our risk modeling into consideration as they make their capital allocations of reserves against claims and also in their underwriting and pricing,” she said. “The key is being able to apply the data coming from the USGS and other sources.”

Science Informs Policy Crafting

“We participate in and inform policy discussions, but we don’t make policy,” said Knudsen. “We help policy organizations understand hazards and help engineers and regulators mitigate hazards.”


California has long mandated that underwriters offer earthquake coverage with homeowner policies. After massive losses in the wake of the 1994 Northridge Quake, premiums increased tenfold, and insurers were going to leave California, so Sacramento created CEA as a “public instrumentality of the state.”

That quake, magnitude 6.7, killed 57 people and injured thousands. It damaged 112,000 structures and caused more than $20 billion in property losses. More than 20,000 people were displaced.

CEA is the primary insurer for the earthquake cover that becomes part of retail homeowners policies offered by more than two dozen commercial carriers, which act as managing agents and collect premiums on behalf of CEA. The authority holds the risk. The commercial carriers assess claims and CEA makes payments.

As with any major underwriter, CEA makes extensive use of the reinsurance market. It would prefer to use those funds to broaden coverage. “We are working on legislation to reduce our payments for reinsurance,” said Maffei, “and to change our structure to post-event funding. That could free as much as $50 million, double our current fund and ten-times our current annual outlay.”

CEA has a loss-mitigation fund from which can be spent as much as five percent of the investment income, or $5 million, whichever is less. Since inception at the end of 1996, CEA has written about a million policies. It has a grant program that provides $3,000 toward retrofits through a lottery program that has focused on the areas of highest risk and vulnerability. About 5,700 retrofits have been completed.

Cost and Availability of Retrofit Programs

For a simple bolt-only retrofit in the Los Angeles area, the grant could pay for the whole project. Full bolt and brace could be $4,500. In the San Francisco area, bolt-only runs about $4,000 to $5,000; bolt and brace $5,000 to $7,000. CEA maintains a list of authorized contractors in an effort to prevent fraud and corruption.

“There is no such thing as earthquake-proof,” cautioned Maffei. “But we can significantly reduce the risk of houses sliding off their foundations.”

In 2015, the Los Angeles Department of Buildings and Safety (LADBS) adopted ordinances requiring the retrofit of pre-1978 wood-frame soft-story buildings and non-ductile concrete buildings.

Maiclaire Bolton-Smith, seismologist and senior leader of research, CoreLogic

As of August 1, LADBS has identified about 12,800 buildings that qualify for the soft-story retrofit program.

Property owners have a fixed amount of time to comply: Two years to submit proof of previous retrofit or plans to retrofit or demolish; three and half years to obtain a permit to start construction or demolition; and seven years to complete the work.

Of those 12,800 structures, only 44 percent comply with the two-year time limit for submitting plans for retrofit, just 19 percent comply with the 3.5-year time limit to obtain permits. A mere 8 percent comply with the seven-year time limit for completion.

The non-ductile concrete retrofit program applies to vulnerable buildings with a roof and/or floor supported by a concrete wall or concrete column, constructed before January 13, 1977.

Owners of those buildings have three years to submit a completed checklist for review; 10 years to submit proof of previous retrofit or plans to retrofit or plans to demolish the building; and 25 years to complete work. LADBS is still in the process of identifying the concrete buildings subject to the ordinance.


The bureau estimates the cost to retrofit apartment buildings with more than three units is up to $8,000 per unit. Notably, the ordinance does not apply to single-family homes.

There is no estimate for commercial buildings. Property owners can contact the California Capital Access Program on the California State Treasurer’s website for information about financial assistance programs.

Knudsen at USGS noted that this is the 150th anniversary of the last major quake on the Hayward Fault, which runs roughly parallel to the California coast from east of San Jose up through Oakland and Berkeley.

Regardless of quiescence for a century and a half, or just a generation, “people need to find out about the buildings they live and work in,” he said. “People need to ask if the building is safe.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.


Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”


Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.


“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at