Compounding this problem is the fact that the vast majority of homeowners living in seismic zones do not purchase earthquake insurance, according to the Insurance Information Institute (I.I.I.). In fact, only 12 percent of California homeowners have earthquake coverage.
Earthquakes and Insurance
Earthquakes are not covered under standard U.S. homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of a supplemental policy to homeowners or business insurance. Standard homeowners and business insurance policies may, however, cover losses from a fire following an earthquake, which would include additional living expenses and business interruption coverage. 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 percent to 20 percent of the structure's replacement value. This means that if it costs $100,000 to rebuild a home and the policy had a 2 percent deductible, the policyholder would be responsible for paying the first $2,000.
In California, homeowners can also secure coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization. The CEA offers homeowners dwelling coverage deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of the home as stated on the companion homeowners insurance policy.
Earthquake insurance premium rates are determined differently by each insurance company and can vary widely depending on several factors, such as the location of the building and the construction materials used in its construction.
U.S. Earthquake History
The severity of last week’s Haitian earthquake is being compared to that of the quake that struck Haiti in 1842, killing thousands, but few realize that the U.S. was also rocked by a major quake in the 19th century.
The New Madrid earthquake of December 1811, one of the largest in U.S. history, had its epicenter in Missouri, and ended up ringing church bells in Boston, more than 1,000 miles away. The New Madrid Fault zone lies within the central Mississippi valley extending from northeastern Arkansas through southeastern Missouri, western Tennessee, Kentucky and southern Illinois. Indeed, four small quakes in mid-December 2009 were felt in Arkansas, Missouri, Tennessee and Kentucky, even though the highest magnitude was only a 3.1, versus the 7.0 temblor which hit Haiti. No injuries or property damage were reported in the U.S. from last month’s seismic activity.
Nonetheless, California remains the U.S. state most at risk of a major earthquake.
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, USC's Southern California Earthquake Center and the California Geological Survey. The study also predicted, in looking at the 30-year probability of one or more events greater than or equal to the magnitude of the Northridge quake hitting California, that there is a 99 percent chance that at least one earthquake meeting that criterion will occur.
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.
Yet, almost 16 years after 1994’s Northridge, California earthquake, only about one in eight California residents have their homes or businesses insured for property losses in the event of a quake, the Insurance Information Network of California (IINC) estimates.
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.