With the horrific news of widespread damage and thousands of deaths in Japan it has beome clear that this is a prolific and dangerous time for earthquakes and the damage they wreak.
Of course we all pray for the people of Japan as they struggle to find loved ones, and care for their injured, and grieve their losses. This quake follows several major earthquakes and tsunamis of recent years.
- India- August 2009
- Haiti- January 2010
- Chile- February 2010
- New Zealand- February 2011
Being in the insurance business its essential to understand coverage options. When I hear of a deadly earthquake and its aftermath, I always think of how America is not properly insured against the risks we face when "the big one" hits; and yet we know fully that it could happen at any time.
Almost every news report in the last three days out of Japan has mentioned how well prepared its country's infrastructure, skyscrapers, and homes are using Hurriquake© nails and other means to mitigate damage from earthquakes and hurricanes. We've all probably seen footage of numerous office buildings swaying but not topling as the earthquake and then the tsunami hit.
What would happen in Los Angeles, San Francisco, or Portland? The resulting damage and loss of life would be far greater and the impact on our economy would be far more devastating. Yet, we know how to retrofit our buildings to better withstand these events, but to a great extent have ignored this need.
There's also the fact that we have mostly not properly insured ourselves against the economic impact of earthquake devastation. Take New Zealand and its recent earthquake as an example. In New Zealand, where damages from a deadly earthquake two months ago could exceed $12 billion, about 90 percent of homeowners have earthquake insurance. By contrast, according to Insurancequotes.com only about 10 percent of homeowners in California. Of course we all know that California is the state most at risk of being rattled by a major quake — and yet only 1 in 10 carry earthquake insurance.
Obviously millions of Californians — and millions of other Americans, for that matter — are unprepared for a major earthquake in terms of insurance coverage. And further, most homeowners may not realize it, but Insurance quote.com reports that at least 39 states are considered at risk of being hit by a moderate to severe earthquake.
Home policies typically don’t cover quakes
While insurance policies with earthquake coverage are fairly easy to obtain, they have extremely high deductibles, high premiums and offer relatively little coverage, leaving some to wonder whether earthquake insurance is actually worth the price.
“There is widespread belief among homeowners that earthquake insurance is included in their policy, but it almost never is. It’s an add-on that you have to buy. Most homeowners are just not covered,” says Rich Roesler to Insurancequote.com. Roesler is a spokesman for the Washington State Office of the Insurance Commissioner.
The costs of earthquake insurance
Deductibles for earthquake insurance can range from 2 percent to 20 percent of a home’s replacement value, according to the Insurance Information Institute. This means that if it costs $200,000 to rebuild a home and the policy has a 2 percent deductible, the policyholder would be responsible for paying the first $4,000.
What does Earthquake Insurance Cover
Earthquake insurance covers the structure of a house, its contents and additional living expenses in the event of an earthquake. But because of the high deductibles, the insurance is viewed by many homeowners as too costly. The California Earthquake Authority has 811,000 policyholders in a state with roughly 37 million residents.
Cars and other vehicles are covered for earthquake damage under the optional comprehensive portion of an auto insurance policy, according to the Insurance Information Institute.
Earthquake insurance premiums can vary dramatically depending on home’s location (California is much higher than North Dakota), age, construction type and other factors. Across the board, an average annual premium for earthquake insurance in California is $813, but it can be substantially lower or higher for homeowners. Insurers rely on data from seismic experts to develop computer models that predict when and where major quakes could happen, and how much damage could be caused.Pomeroy notes that if you own a home along the earthquake fault line in the San Francisco area, insurance will cost considerably more than if you own a home in Sacramento, which does not lie near a fault.
In Washington state, the market for earthquake insurance is relatively minuscule. In 2009, direct premiums written in the state totaled only $113 million, compared with the $1.3 billion in homeowner’s policies that were written.
Despite the expense, the Insurance Information Institute makes an observation that may make it worth considering earthquake insurance if you live in a quake-vulnerable state:
“The potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may not have been built or upgraded to current building codes.”
