Californians Not Quaking Over Properly Insuring Their Homes

A deadly 6.3 magnitude earthquake that hit New Zealand in February of 2011, leaving people dead and billions in losses, serves as a reminder to residents of the U.S. regarding their vulnerability to this kind of natural disaster.

As the Insurance Information Institute (I.I.I.) points out, the potential expense of such a natural disaster in the U.S. has been increasing due to the growing urban development in seismically active locales and the vulnerability of older buildings, many of which may not have been constructed or upgraded to present building codes.

Similarly to New Zealand, where residents have shown complacency in recent years regarding the threat of an earthquake despite warnings from the government, many U.S. homeowners residing in seismic zones do not acquire earthquake insurance. Numbers show that less than 12 percent of homeowners in California have earthquake insurance.

Homeowners should note if not aware that earthquakes are not covered under standard U.S. homeowners or business insurance policies. Coverage is typically an option 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 resulting from a fire after an earthquake, which would include added living expenses and business interruption coverage. Cars and other vehicles are covered for earthquake damage through the optional comprehensive section of one’s auto insurance policy.

In many cases, earthquake insurance policies will carry a deductible, typically in the form of a percentage as opposed to a dollar amount. Deductibles can run anywhere from 2 percent to 20 percent of the structure’s replacement value.

For homeowners in California, they can acquire coverage via the California Earthquake Authority (CEA), a privately funded, publicly run organization.

Through the CEA, homeowners can get deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of the residence as stated with the companion homeowners’ insurance policy.

Homeowners should note that earthquake insurance premium rates are decided differently by each insurer. The prices can differ widely depending on a number of factors, including the locale of the building and how it was constructed.

California remains to garner the most attention when it comes to earthquakes in the U.S., especially given the deadly history in the Golden State.

A 2008 study compiled by the U.S. Geological Survey, USC’s Southern California Earthquake Center and the California Geological Survey, there is a nearly 100 percent chance that at least one major quake that will strike California within the next three decades.

The Northridge earthquake of 1994 and the Loma Prieta earthquake that hit in 1989 were the two most expensive earthquakes in U.S. history, as defined by insured losses. The Northridge quake led to approximately $15.3 billion in insured losses while the Loma Prieta quake led to losses of nearly $1 billion when it hit.

Given those staggering numbers, it may come as a shock in the fact that more than 17 years following the deadly Northridge quake, less than one in eight California residents have their residences or businesses insured for property losses should an earthquake hit, according to the Insurance Information Network of California (IINC).