Sunday, March 27, 2011

DISASTER INSURANCE: Only 12% of California Home Owners Have Earthquake Insurance

Sacramento—The tragic tsunamis and magnitude 8.9 earthquake that have struck Japan—the 5th-largest quake in the world since 1900—are a stark reminder that earthquakes can happen any time, and it’s essential for home owners to prepare, not just for the quake but for what happens after.

“Preparing for earthquakes is critical, not just in California but in all the other seismic regions throughout the United States,” said Glenn Pomeroy, CEO of the California Earthquake Authority (CEA). “The simple truth is that our country is not adequately prepared for the destruction—and financial devastation—from the ‘Big One’ that strikes closer to home.”

Even though California has two-thirds of the nation’s earthquake risk and most state residents live within 30 miles of a major fault, just 12% of Californians with fire insurance also have earthquake coverage, Pomeroy said.

“The bottom line is that it’s very hard to imagine how a community would recover from a massive quake, when nearly all the damaged homes are completely uninsured for the loss,” Pomeroy said.

Quake not covered by home owners insurance
In California, home owners insurance covers fire loss but doesn’t cover earthquake damage—a separate policy is required. Without earthquake insurance, a California home owner pays out of pocket the full cost of fixing his or her home. And they’ll continue making mortgage payments while also paying the cost of living and eating elsewhere while their home is repaired.

Cars and other vehicles are covered for earthquake damage under the optional comprehensive portion of an auto insurance policy.

Earthquake insurance policies often carry a deductible, generally in the form of a percentage rather than a dollar amount. Deductibles can range anywhere from 2% to 20% of the structure’s replacement value. This means that if it costs $100,000 to rebuild a home and the policy had a 2% deductible, the policyholder would be responsible for paying the first $2,000.

U.S. earthquakes
Since 1900, earthquakes have occurred in 39 U.S. states. Minor earthquakes, for instance, struck states such as Illinois and Nevada in 2008. There hasn’t been a major quake on the U.S. mainland, however, since the 6.7 magnitude Northridge, Calif., event in 1994.

Nonetheless, a huge quake is more likely in Southern California than in Northern California over the next 30 years, according to a 2008 study compiled by experts from the U.S. Geological Survey.

The study also concluded that there is a 99% chance that a quake greater than or equal to the magnitude of the Northridge quake will hit California during the next 30 years.

The 1994 Northridge earthquake and the 1989 6.9 magnitude Loma Prieta quake that struck the Oakland-San Francisco area during that year’s World Series were the two most costly earthquakes in U.S. history, as defined by insured losses. In 2008 dollars, Northridge caused an estimated $19 billion to $29 billion in economic losses while the Oakland-San Francisco quake resulted in losses totaling a little over $12 billion.

Sources: Insurance Information Institute and California Earthquake Authority

House March 16, 2011

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