Home and Business Owners Should Be Prepared and Consider Earthquake Insurance, Notes I.I.I.

INSURANCE INFORMATION INSTITUTE
Contact: Press Offices
New York: 212-346-5500; media@iii.org
Washington, D.C.: 202-833-1580


NEW YORK, April 24, 2008 — The revised earthquake-hazard maps released this week by the U.S. Geological Survey (USGS) provide greater understanding of the seismically active areas of the country, particularly the Pacific Northwest, while also highlighting the need for property owners to consider purchasing earthquake coverage, according to the Insurance Information Institute (I.I.I.).

“The U.S. Geological Survey found that earthquakes remain a serious threat in 46 U.S. states. And this was clearly illustrated by last Friday’s 5.2-magnitude earthquake in southern Illinois, which was felt in neighboring states,” said Michael Barry, vice president of media relations for the I.I.I. “Despite that fact, only a very small percentage of home and business owners outside of California purchase earthquake insurance.”

The southern Illinois earthquake was the strongest in that part of the state since November 1968, when a 5.4-magnitude earthquake struck, according to the USGS.

Earthquakes are not covered under standard 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, including additional living expenses and business interruption coverage. Cars and other vehicles are covered for earthquake damage under the comprehensive part of an auto insurance policy.

Earthquake insurance often carries 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 there was 2 percent deductible, the policyholder would be responsible for paying the first $2,000.

In its 2008 hazard maps, the USGS, a federal agency, found that western Washington and Oregon were especially vulnerable to intense earthquakes because of their proximity to an underwater fault line situated about 50 miles offshore of both states. Indeed, Washington ranks second and Oregon fifth in the U.S. when it comes to purchasing earthquake insurance, with Washington residents spending almost $118 million for this coverage in 2006 and Oregonians a little over $52 million, according to the National Association of Insurance Commissioners (NAIC).

“Nevertheless, those two states are not nearly as prepared as they need to be,” said Barry, who noted that Washington and Oregon were last hit by a severe earthquake in 2001, an event registering a 6.8 magnitude on the Richter scale.

Even in California, where earthquake concerns are a fact of life, only about 12 percent of homeowners have earthquake insurance, down from 30 percent in 1996. “We want homeowners not just in California and the Pacific Northwest but in other parts of the country to make sure they have the right type of coverage should an earthquake hit,” said Barry.

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.

Many insurance companies now require that your home be bolted to its foundation—a practice that wasn’t required by building codes until the early 1960s. There also may be some homeowners that need to show additional earthquake mitigation efforts since they are at greater risk than they were before, noted the I.I.I.

U.S. states and regions are graded on a scale of 1 to 5 for the likelihood of earthquakes, so the latest update to the USGS maps may have an impact on how certain insurance companies assess earthquake risk. Previous USGS surveys on the topic were released in 1996 and 2002.

A key step in preparing for a disaster is to create and regularly update an inventory of your personal possessions. To encourage consumers to create a home inventory, the I.I.I. has developed the popular software program, Know Your Stuff, which can be downloaded free-of-charge at www.KnowYourStuff.org.

For more information about earthquake preparedness, go to the Institute for Business & Home Safety’s DisasterSafety.org Web site.

For more information about earthquake insurance, go to the I.I.I. Web site.


The I.I.I. is a nonprofit, communications organization supported by the insurance industry.