2/3 of policies sold in California are assigned to the California Earthquake Authority (CEA), which is a semi-private/semi-public corporation that carries the principal risk. It was formed in 1994, when many private insurers discontinued earthquake insurance after the Northridge quake.

Insurance agencies serve primarily as vendors, customer service, etc., but the risk is carried by the CEA. The remaining 1/3 of policies are carried by a few private insurers who still underwrite policies.

In theory, that system should prevent insolvency. Remember that California is a huge state and even a very strong earthquake would still have fairly localized damage. For example, the 1906 earthquake (Richter 8.0) that levelled San Francisco did comparatively little damage to Petaluma, a city 40 miles to the north.

Hence the original question. I've always wondered the same thing.

> Wait I'm sorry but if the policies are to cover catastrophic damage, but if catastrophe actually strikes and the insurance company becomes insolvent, What's the actual point or purpose of insurance then?

Making the insurance executives ultra-rich.