Potential cost of earthquakes up, U.S. homeowners with related insurance coverage down

Just 7% of homeowners in the United States have earthquake insurance despite updated maps from the U.S. Geological Survey (USGS) showing that some areas of the country are at risk of earthquakes and the potential associated costs are also on the rise, reports the Insurance Information Institute (III).

The potential cost of earthquakes is growing while the number of those in the U.S. with coverage is declining in many parts of the country, notes a statement issued Monday by III, a non-profit, communications organization supported by the insurance industry.

The updated USGS maps reveal that 42 states are at risk for earthquakes, with 16 states at high risk. Risk is especially high on the West Coast, while the East Coast has the potential for larger and more damaging earthquakes than had been previously considered, the press release states.

“In some areas of the country, a combination of increasing urban development in seismically active areas and large numbers of older buildings that do not adhere to current building codes suggests the potential cost of an earthquake is likely to rise,” the III adds.

The 1994 Northridge, California, earthquake – the most costly in U.S. history – caused an estimated US$44 billion in total property damage, including US$15.3 billion in insured losses (or US$24.1 billion in 2013 dollars). The Northridge quake is the fifth most costly insured U.S. disaster, notes the III.

Despite potential costs likely being on the rise, survey results released by the institute earlier this year are not encouraging:

• 7% of polled homeowners nationwide report having earthquake coverage, down from 10% in 2013;
• 10% of respondents in the West had coverage, down from 22% (only 12% of surveyed residents in California – where nine of the most costly earthquakes in the last century occurred – had coverage, down from 30% in 1996);
• 7% of respondents in the Midwest had coverage;
• 6% of respondents in the South had coverage; and
• just 2% of respondents in the Northeast had coverage.

Jeanne Salvatore, the III’s senior vice president and chief communications officer, points out that standard homeowners, renters and business insurance policies do not cover damage from earthquakes. “Coverage is only available in the form of an endorsement or as a separate policy,” Salvatore explains.

The III notes that earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions. Coverage for other kinds of damage that may result from earthquakes, such as fire and water damage due to burst gas and water pipes, is generally provided by standard homeowners and renters insurance policies, the statement adds.

Cars and other vehicles are covered for earthquake damage under the optional comprehensive portion of an auto insurance policy.

The cost of earthquake coverage varies depending on the location of the property, how it was built and the terms of the insurance policy. Earthquake insurance carries a deductible, generally in the form of a percentage rather than a dollar amount, with deductibles ranging anywhere from 2% to 20% of the replacement value of the structure, except in states with a higher than average risk of earthquakes, which often have minimum deductibles at about 10%.