Majority of Homeowners in States Most Vulnerable to Earthquakes Have Not Purchased Earthquake Coverage, Says I.I.I.
NEW YORK, June 25, 2010 – The 5.0 earthquake that struck the Ontario-Quebec border region of Canada and was felt in Vermont, parts of upstate New York and as far away as Ohio, Illinois and Indiana on Wednesday, June 23, is a stark reminder of the vulnerability of the United States to this type of disaster.
The potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may not have been built or upgraded to current building codes.
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, the U.S. state most at risk of a major earthquake, have earthquake coverage. And even fewer homeowners in other states have the 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 has 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, the construction materials used in its construction as well as the proximity to a fault line.
U.S. EARTHQUAKE HISTORY
Since 1900, earthquakes have occurred in 39 U.S. states. Minor earthquakes, for instance, struck states such as Illinois and Nevada in 2008. According to the U.S. Geological Survey (USGS), the largest earthquake in New York state, was 5.8 on September 5, 1944, and was felt from Canada south to Maryland and from Maine west to Indiana. The last major quake on the U.S. mainland was the 6.7 magnitude Northridge, California event in 1994.
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 USGS, 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 2009 dollars, Northridge caused an estimated $22 billion in insured losses and approximately $22 billion in economic losses while the Loma Prieta quake resulted in $1.6 billion in insured losses and $8.3 billion in economic losses.
Yet, almost 16 years after 1994’s Northridge, California, earthquake, only about one in eight California residents has their home or business insured for property losses in the event of a quake, the Insurance Information Network of California (IINC) estimates.
About Insurance Information Institute
The I.I.I. is a nonprofit, communications organization supported by the insurance industry. www.iii.org