Tag Archives: seismically active

Insurance and losses of Earthquakes

The U. S. has about 20,000 earthquakes a year. Most of them are small. According to a U. S. Geological Survey 42 states are at risk of earthquakes.

Global losses from earthquakes were about $313 million in 2014. That is higher than 2013 losses of $45 million. It is far below 2011’s $54 million, the highest ever recorded according to Swiss Re.

The Californian Earthquake Authority has some 800,000 policies in force in the state. Only about 10 percent of Californians purchase earthquake coverage, according to the California Insurance Department.

Earthquake insurance is generally not included in standard homeowners insurance policies.

An earthquake is a sudden and rapid shaking of the earth.  It is caused by the breaking and shifting of rock beneath the earth’s surface. This shaking can sometimes trigger landslides, avalanches, flash floods, fires and tsunamis. Unlike other natural disasters such as hurricanes, there are no specific seasons for earthquakes.

Earthquakes in the United States are not covered under standard homeowners and business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement.    However, insurers that don’t sell earthquake insurance may still be impacted by these catastrophes due to losses from fire following a quake. These losses could involve claims for business interruption and additional living expenses as well. Cars and other vehicles are covered for earthquake damage under the comprehensive part of the auto insurance policy.

One of the worst catastrophic in U. S. history, the San Francisco Earthquake of 1906, would have caused insured losses of $96 billion, were the quake to hit under current economic and demographic conditions according to AIR Worldwide.

The potential cost of earthquakes has been growing because of increasing urban development in seismically active areas.  Also the vulnerability of older buildings, which may not have been built or upgraded to current building codes.

The Northridge earthquake, which struck Southern California on January 17, 1994, was the most costly quake in U. S. history,.  It caused an estimated $44 billion in total property damage when it occurred, including $24.5 billion in insured losses in 2014 dollars. The California Earthquake Authority is one of the world’s leading residential earthquake insurers.  They have 800, 000 policies in force and 17 participating insurers. However, only about 10 percent of homeowners in California now buy earthquake insurance according to the California Insurance Department.

Japan Earthquake and Tsunami:

On March 11, 2011 an earthquake and Tsunami struck northeast Japan killing thousands of people and injuring many others. The Tsunami was generated by a 9.0 magnitude earthquake. It was approximately 80 miles offshore and about 230 miles northeast of Tokyo.

The Japan earthquake cost the insurance industry an estimated $35 billion. This is a fraction of the total losses.

Earthquake Forecasts:

In April 2008 experts from the U. S. Geological Survey, USC’s Southern California Earthquake Center and the State Geological Survey released an earthquake forecast.  This indicated that a huge quake is far more likely in Southern California than in Northern California in the next 30 years. The report also concluded that the state is virtually certain to be hit by a major earthquake by 2028. The researchers found that the chance of a 6.7 quake is 37 percent in Southern California and 15 percent in Northern California. The study used new information about prehistoric earthquakes.  The location of faults and their slip rates.

Insurance Coverage for Earthquakes in the United States:

Standard homeowners, renters and business insurance policies do not cover damage from earthquakes. Coverage is available either in the form of an endorsement or as a separate policy for homeowners, renters and small business owners. Unlike flood insurance, earthquake coverage is available from private insurance companies rather than from the government. In California, homeowners can also get coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organisation.

Earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions. Coverage for other kinds of damage that may result from earthquakes, such as fire and water damage due to burst gas and water pipes, is provided by standard home and business insurance policies in most states.

Cars and other vehicles are covered for earthquake damage by comprehensive insurance which also provides protection against flood and hurricane damage as well as theft.

Deductibles and Costs:

Earthquake insurance carries a deductible, generally in the form of a percentage rather than a dollar amount. Deductibles can range anywhere from 2 percent to 20 percent of the replacement value of the structure. This means that if it costs $100,000 to rebuild a home and there was a 2 percent deductible, the consumer would be responsible for the first $2,000. Insurers in states like Washington, Nevada and Utah, with higher than average risk of earthquakes, often set minimum deductibles at around 10 percent. In most cases, consumers can get higher deductibles to save money on earthquake premiums.

Premiums also differ widely by location, insurer and type of structure that is covered. Generally older buildings cost more to insure than new ones. Wood frame structures generally benefit from lower rates than brick buildings because they tend to withstand quake stresses better. The cost of earthquake insurance is calculated on “per $1000 basis”. For instance, a frame house in the Pacific NorthWest might cost between one to three dollars per $1000 worth of coverage, while it may cost less than fifty cents per $1000 on the East Coast.