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

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 North Carolina with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.


Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.


As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.


Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &


Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]