Few Households Have Earthquake Coverage; Flood Insurance Policies Cover Tsunami Losses
INSURANCE INFORMATION INSTITUTE
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NEW YORK, October 7, 2009 — The devastating earthquakes that led to the extensive loss of life and widespread property damage last week in Indonesia, Samoa and American Samoa are a grim reminder that the U.S. mainland is also susceptible to quakes, according to the Insurance Information Institute (I.I.I.).
The earthquake, which hit the Indonesian city of Padang and its surrounding areas on Wednesday, September 30, had a 7.6 magnitude whereas Samoa and American Samoa were hit by a tsunami on Tuesday, September 29, that was caused by an 8.0 magnitude earthquake centered about 120 miles south of the Samoan Islands.
Since 1900, earthquakes have occurred in 39 states and have caused damage in all 50. Minor earthquakes, for instance, struck states such as Illinois and Nevada in 2008. There has not been a major quake on the U.S. mainland, however, since the 6.7 magnitude, Northridge, California, event in 1994.
California remains the U.S. state most at risk of a major earthquake. 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
U.S. Geological Survey, USC's
Southern California Earthquake Center and the
California Geological Survey. This same 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, 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 were the two most costly earthquakes in U.S. history, as defined by insured losses. In 2008 dollars, Northridge caused an estimated $19 billion to $29 billion in insured losses while the Oakland-San Francisco quake resulted in insured losses totaling a little over $12 billion.
The potential cost of 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. Unlike other natural disasters, such as hurricanes, there are no seasons or warnings for earthquakes. They can happen almost anywhere at anytime.
A tsunami is a series of ocean waves generated by sudden displacements in the sea floor, landslides or volcanic activity, according to the
National Oceanic and Atmospheric Administration (NOAA). NOAA has bolstered its tsunami detection and warning systems since the December 2004 Indonesian tsunami, increasing from six to 39 the number of “tsunami buoys” it has installed worldwide.
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 a home or business insurance policy. 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 cost $100,000 to rebuild a home and the policy had a 2 percent deductible, the policyholder would be responsible for paying the first $2,000. The CEA offers homeowners dwelling coverage deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of your home as stated on your companion homeowners insurance policy.
Earthquake insurance premium rates are determined differently by each insurance company and can vary widely depending on several factors. For example, older homes generally cost more to insure because their construction predates many of the engineering advances that have made newer homes more structurally sound. And wood homes often have lower premium rates than brick buildings because wood tends to withstand earthquake stresses better.
Tsunamis and Insurance
Flood damage is
not covered under most standard homeowners insurance policies. Tsunamis cause flood damage and are therefore only covered by a flood policy. Flood policies are available from the federal government’s National Flood Insurance Program (NFIP), and some private insurance companies, and can generally be purchased from the same agent or broker who provides your homeowners or renters insurance. Additional information on flood insurance can be found by going to the
FloodSmart.gov Web site or calling 888-379-9531. Should you need coverage over and above the $250,000 for property and $100,000 for contents provided by the NFIP, excess flood insurance is also available from private insurance companies.
The I.I.I. recommends that everyone, no matter where they live, contact their agent or company representative to make sure that they have the right type and amount of insurance; an up-to-date home inventory; an evacuation plan; and have taken reasonable steps to protect their home from the disasters that pose a risk to their property and personal safety.
The I.I.I. has online content on
Earthquakes, broken down into Consumer Basics and Research and Background Papers.
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.
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