Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Shaken, Not Stirred…to Action
It used to be that earthquake insurance in California had to be offered by the same company that underwrote one’s regular homeowners policy. Then in 1994, the devastating Northridge earthquake literally shook up the entire industry, and subsequently many insurance companies simply refused to write either type of policy. Out of necessity, a new entity was created by state law in 1996 called the California Earthquake Authority (CEA), a “not-for-profit, privately funded, publicly managed organization that provides residential earthquake insurance and encourages Californians to reduce their risk of earthquake losses.” The CEA became the primary way to buy earthquake coverage for homeowners who still wanted it, though it has never been too popular because it is expensive (both premiums and deductibles), limited (in coverage), and restrictive (only offered for sale every other year). But recent improvements to the CEA program might be cause for a second look.
While some private policies still exist in the state, about 75% of all earthquake insurance is now provided by the CEA; and yet, only about 15% of California homeowners currently have any kind of earthquake coverage. Indeed, many homeowners may falsely believe that they have earthquake insurance because they have a homeowners policy; but earthquake coverage is separate and distinct. The main objection has long been the “one size fits all” deductible, which for years was a single 15% amount. In a state known for high home values, this can mean very high out-of-pocket commitments. But the CEA now offers a range of deductible choices — from 5% up to 25% — so homeowners have more flexibility to suit their financial circumstances and risk mitigation preferences. The policies also had relatively low limits on personal property and stingy “loss of use” assistance (for lodging needed during reconstruction), but modest improvements have been made. Premiums remain high because liabilities linger — and damages from Northridge alone were estimated at up to $20 billion plus additional economic losses — but at least now there is some greater ability to adjust coverage and cost.
Regardless of provider — CEA or private — all earthquake insurance needs to be coordinated with the same company that underwrites the homeowners policy; and thus this relationship should help with overall risk management assessment and suitability of coverages (especially on higher-end homes). Of course, many homeowners may still simply “self-insure” against this particular peril, because unlike certain exposures that require insurance — like auto and mortgaged homes — earthquake coverage is strictly optional. And yet, the decision to carry it (or not) should always be deliberate.
Location and condition also impact pricing, including the home’s age and whether it is built on landfill or susceptible to liquefaction. Typically, one-story wood frame houses — bolted to their foundations — are cheaper to insure. Indeed, regardless of insurance considerations, homeowners should retrofit as much as possible and secure furniture and breakable items to help protect against property damage. In California, all sorts of natural hazards exist that imperil homes, but sensible precautions can help. The entire state is one big seismic area riddled by fault lines, so unlike avoiding flood plains or steep slopes susceptible to mudslides, it is practically impossible to live in California without accepting some degree of earthquake risk. The difficult and ongoing task is weighing personal financial resources against such inherent risk, while also taking into consideration that home type and location plus the cost and breadth of coverage available in today’s earthquake insurance marketplace.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – College Bound — Hip, HIPAA, Hooray
- – Fiscal Sponsorship for Charity
- – Risky Business
- – Emotional Rescue
Related Posts