We all have watched movies where we know tragedy could be lurking around the corner for a main character, but they are unaware of the potential disaster.
Watching consumers contemplate earthquake insurance can be a little like that for insurance professionals. However, unlike at the movies, with earthquake insurance we can actually provide a warning about the danger and help mitigate the damage if it occurs.
Despite the known threat of earthquakes, few Americans purchase earthquake insurance. Some mistakenly believe earthquake damage is covered by their homeowners’ insurance. If that is their main obstacle to buying the protection, a quick conversation with a knowledgeable agent can address the issue.
But, it is common for people to say “it will never happen to me.” However, the number of people exposed to potentially damaging earthquakes is staggering. The U.S. Geological Survey estimates that nearly half of all Americans are at some risk for damaging earthquakes. Approximately 57 million people live in areas with a moderate chance for damaging earthquakes and 28 million are in states with high potential. The 6.0-magnitude 2014 Napa earthquake caused $700 million in total damage and $550 million was uninsured losses.
This year, the USGS also calculated that nearly 7 million people in central and eastern United States are at risk from human-induced earthquakes. Surprisingly, some areas in Oklahoma face a similar earthquake potential as California’s high-risk areas. But in Oklahoma and as well as on the West Coast, where the risk is well known, only around 10 percent of homeowners purchase earthquake coverage.
Editors Note: Reviewing the history of earthquakes in North Carolina would suggest that we do have some degree of risk, though it appears to be quite low. There have been a number of earthquakes in North Carolina over the last couple of hundred years, but none of them have caused severe damage. Most of the damage from these quakes involved cracked chimneys, broken dishes and windows, and other minor property damage. That said, we do live near the Eastern Tennessee Seismic Zone, and a large quake in that zone would adversely affect western North Carolina.
Getting past cost barrier
Another reason many people don’t buy earthquake insurance is their concern regarding the price for the coverage or the deductible that may be required.
Consumers need to realize that earthquake insurance is important for peace of mind and there are ways to reduce costs. Insurers may offer lower premiums on wood-frame homes versus ones made of brick or masonry. Frame homes typically can withstand shaking better, whereas brick or masonry homes aren’t able to flex with the movement and can crack. If consumers mitigate damage to their home their insurer may offer a discount. This makes it important for insurers and consumers to discuss coverage options that are available as they vary from company to company.
he deductible for earthquake insurance also varies based on the policy and the insurer. Deductibles are generally based on a percentage of the replacement value of the home. It can range from 2 percent to 25 percent of the home’s replacement value.
There is good news in California as the California Earthquake Authority has made changes to earthquake policies sold there. Not only were rates lowered this year, consumers are being given many more options. Deductibles from 5 percent to 25 percent are available and coverage amounts for personal property and additional living expenses increased significantly. While these changes don’t solve all of the challenges of selling earthquake insurance, they make it a more attractive and flexible option for homeowners and renters.
There is a misperception among some consumers that federal disaster assistance will be enough to rebuild and recover from an earthquake or other natural disaster. While disaster assistance is very helpful for temporary housing and emergency home repairs, it does not provide enough to fully repair damaged homes. Unfortunately, some consumers find this out the hard way.
Earthquakes are the least predictable of all catastrophes but that does not mean that consumers can’t be prepared. Inexpensive things consumers can do include securing large objects that could fall and hurt residents during an earthquake. Securing water heaters to minimize movement, considering earthquake shut-off valves and installing flexible connections to gas appliances can all help reduce damage.
The Great ShakeOut Earthquake Drill on Oct. 20 provides an opportunity for agents to reach out to consumers and encourage them to practice and think about not only what to do when the ground begins to shake, but how they would recover if they experience property damage. There is generally little to no warning that a quake is about to occur, so advance preparation, both physically and financially with adequate insurance, is the key to earthquake recovery.
Jeffrey Brewer is vice president of public affairs at the Chicago-based Property Casualty Insurers Association of America.