Earthquake Insurance: What You Should Know

Images of the widespread damage caused by the 7.0-magnitude quake that occurred in Haiti on January 12, 2010, provide an unsettling reminder of nature’s destructive power. But the fact is that many areas of the United States are potentially at risk of a major earthquake.

While California is exposed to the most danger, other areas of the country have suffered major quakes. In fact, earthquakes have occurred in 39 states since 1900.¹ Yet despite the potential for serious property damage, few homeowners have earthquake insurance protection for their properties.

Earthquakes are generally not covered under standard homeowners or business insurance policies, but separate policies are often available. Here’s a look at some of the most powerful earthquakes to shake up the United States and how an earthquake policy could potentially cover homeowners’ losses, up to the policy limits, from a seismic disaster.

Major U.S. Quakes

Residents of the United States have been rocked by a number of major quakes, putting more people in harm’s way. The potential for damage becomes more pronounced when increased urban development occurs in seismic zones, and when older structures have not been retrofitted to meet current standards.

• 1811 New Madrid Earthquake: The epicenter of this quake was in Missouri, but it was also felt along the fault from northern Arkansas, western Tennessee, and Kentucky to southern Illinois. This massive quake rang church bells as far away as Boston.² Had the area not been sparsely populated at the time, it would have caused much more damage.
• 1886 Charleston Earthquake: In the most destructive seismic event recorded in the southeast United States (the epicenter was in Summerville, South Carolina), more than 2,000 buildings were damaged, at a price of more than $5 million — or roughly 25% of the value of all the buildings in the area at the time.^3,4
• 1906 San Francisco Earthquake: The quake itself and the resulting fire all but destroyed the growing city. It is estimated that 3,000 people perished and as many as 225,000 (of an estimated 400,000 population) were left homeless.⁵
• 1989 Loma Prieta Earthquake: The earthquake that struck the Oakland–San Francisco Bay area during the televised World Series caused nearly $12 billion worth of property damage.⁶
• 1994 Northridge Earthquake: This Los Angeles–area quake was the most expensive in history with more than $19 billion in estimated losses.⁷

In addition to the historic quakes listed above, earthquakes of magnitude 6.5 or above have been documented in Hawaii, Alaska, Washington, Oregon, Nevada, Montana, Utah, Colorado, Idaho, and Wyoming.⁸

Catastrophic Coverage

Generally, earthquake policies are a form of catastrophic insurance designed to help protect homeowners from suffering a total loss on their property in the event of a disaster. As a result, most policies carry a high deductible, ranging from 2% to 20% of the structure’s replacement value. Policy rates depend on the age and construction of the home and how likely it is for earthquakes to occur in the location where it sits.

In California, a private-public partnership called the CEA (California Earthquake Authority) offers property owners an earthquake policy with a 10% or 15% deductible. The coverage limit is typically the insured value of the home as stated on the accompanying homeowners policy.* Although many experts and even residents believe another major quake is likely to affect the state, only 12% of California homeowners currently have earthquake insurance.⁹

Has the alarming threat of a major quake crossed your mind lately? Please call if you would like to review your policies and discuss the earthquake coverage options that are currently available to you.

* The CEA policy contains exclusions and special limits of coverage. Read the entire policy to become familiar with what is and is not covered.

1, 2, 6, 7, 9) Insurance Information Institute, 2010
3) South Carolina Earthquake Education & Preparedness Program, 2010
4, 5, 8) U.S. Geological Survey, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.