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Earthquakes and Insurance

Earthquakes and Insurance

Earthquakes and Insurance

The world was shaken pretty badly earlier this month when two powerful earthquakes rocked Italy and MyanNational Seismic Hazard Mapmar, just hours apart. According to geophysicists, the two unfortunate events were not related, as they are located along different faults in different parts of the world. They just happened to occur on the same day.

The natural disasters stand as warnings to homeowners and business owners in many parts of the U.S. as they also face risks from earthquakes and should take precautionary measures. Even though the earthquake threat exists in many states, only about one in 10 households has coverage for quake-caused property damage, according to I.I.I.’s 2015 Pulse Survey.

Earthquakes are not covered under standard homeowners or business insurance policies. This type of coverage can be acquired in the form of a supplemental policy that provides protection from the cracking and shaking caused by such calamities that can destroy buildings and personal possessions. Other kinds of related damage, such as fire and water damage due to burst gas or water pipes, are generally covered by the standard homeowners and renters insurance policies.

Earthquakes are not uncommon in the United States—in 2015 there were 32 earthquakes of magnitude 4.0 and higher in Kansas, Oklahoma and Texas, compared to only 17 in 2014. The biggest earthquake to occur in the U.S. in recent years was a magnitude 6.9 quake that stroke on July 27, 2015, southwest of Umnak Island, Alaska. Thanks to its remote location, there was no damage. Nevada and Arizona witnessed moderate earthquakes with no fatalities.

The percentage of homeowners with earthquake insurance across the U.S. has declined, despite rising estimated of the risk of an earthquake. Yet, as fewer people opt for earthquake insurance, the government is upping its assessment of the risk of a sizable shake. An updated hazard map issued by the U.S. Geological Survey shows an increased earthquake risk for almost half the country. Parts of Washington, Oregon, Oklahoma and Tennessee, among others, moved into the top two hazard zones, while the San Francisco Bay area shows a 63 percent chance of one or more major earthquakes before 2036. Yet people are buying less earthquake coverage.

The earthquake insurance is purchased separately and often comes with a high deductible, in addition to premiums. The California Earthquake Authority took note of the decreasing number of earthquake-insured clients and stated that 2016 will be the year when people ought to give earthquake insurance a second look. The state authority expanded its policy offerings to allow a greater range of deductibles, to provide higher levels of personal property coverage and to give greater premium discounts for those who make their home less prone to quake damage.

Over the past two years, the authority has cut premiums a total of 55 percent, while reconstruction costs have increased 168 percent. The move seems to have a positive reaction as during the first six months of the program 22,000 homeowners have purchased earthquake insurance, a big step from the 12,000 new policies a year during the past decade.