The measure by Senator Mike Machado, D-Linden, creates a new $1.3 billion underwriting requirement for insurance companies participating in the California Earthquake Authority program.
That $1.3 billion requirement will replace a $2.2 billion insurance industry commitment that's scheduled to expire on Dec. 1, 2008.
State Treasurer Bill Lockyer opposed the legislation, predicting it would force a raise in rates by another 8.5 percent to make up for the potential loss of industry contributions. Right now, they average about $700 a year.
He urged lawmakers to extend the $2.2 billion obligation until the authority builds up $6 billion in cash reserves. Currently it has only $2.7 billion.
But Machado said the $1.3 billion obligation was the best compromise that he could work out with the insurance industry. According to Machado, that an extension of the $2.2 billion requirement could have driven insurers out of the state. Without the $1.3 billion replacement, homeowners would face average rate hikes of 20 percent, he predicted.
Tim Richison, the authority's chief financial officer, said the likelihood of a rate increase with the smaller industry underwriting obligation will depend on how much the authority has to pay for reinsurance to help cover its claims.
Under Machado's bill, the $1.3 billion underwriting obligation will be phased out over 10 years, although the phase-out could be suspended for up to two years if the authority is forced to pay at least $500 million in claims because of an earthquake.