Baja Earthquake Offers Reminder of U.S. Vulnerability To This Type Of Natural Disaster, Says I.I.I.

Even In California, Few Have Earthquake Coverage For U.S. Property Losses

INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; media@iii.org

 

New York, April 5, 2010—The 7.2 magnitude earthquake that struck Baja California, Mexico, rattling  parts of California and Arizona, is a stark reminder of the vulnerability of the United States to this type of disaster. The potential cost of U.S. 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.

 
Compounding this problem is the fact that the vast majority of homeowners living in seismic zones do not purchase earthquake insurance, according to the Insurance Information Institute (I.I.I.). In fact, only 12 percent of California homeowners have earthquake coverage.
 
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 homeowners or business insurance. 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 costs $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.
 
In California, homeowners can also secure coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization. The CEA offers homeowners dwelling coverage deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of the home as stated on the companion homeowners insurance policy.
 
Earthquake insurance premium rates are determined differently by each insurance company and can vary widely depending on several factors, such as the location of the building and the construction materials used in its construction.
 
U.S. Earthquake History
 
Since 1900, earthquakes have occurred in 39 U.S. states. 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.
 
Nonetheless, 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. The 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, that 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 during that year’s World Series 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 economic losses while the Oakland-San Francisco quake resulted in losses totaling a little over $12 billion.
 
Yet, almost 16 years after 1994’s Northridge, California, earthquake, only about one in eight California residents have their homes or businesses insured for property losses in the event of a quake, the Insurance Information Network of California (IINC) estimates.
 
Mexico’s Earthquake History
 
Situated atop three of the large tectonic plates (North American, Cocos and Pacific) that constitute the earth's surface, Mexico is one of the most seismologically active regions on earth. The motion of these plates causes earthquakes and volcanic activity. Most of the Mexican landmass rests on the westward-moving North American plate. The Pacific Ocean floor off southern Mexico, however, is being carried northeast by the underlying motion of the Cocos Plate. Ocean floor material is relatively dense; when it strikes the lighter granite of the Mexican landmass, the ocean floor is forced under the landmass, creating the deep Middle America Trench that lies off Mexico's southern coast. The westward moving land atop the North American plate is slowed and crumpled where it meets the Cocos plate, creating the mountain ranges of southern Mexico. The subduction (a geologic process in which one edge of one crustal plate is forced below the edge of another) of the Cocos plate accounts for the frequency of earthquakes near Mexico's southern coast. Areas off Mexico's coastline on the Gulf of California, including the Baja California Peninsula, are riding northwestward on the Pacific plate. Rather than one plate subducting, the Pacific and North American plates grind past each other, creating a slip fault that is the southern extension of the San Andreas fault in California. Motion along this fault in the past pulled Baja California away from the coast, creating the Gulf of California. Continued motion along this fault is the source of earthquakes in western Mexico.
 
Mexico has a long history of destructive earthquakes. According to the U.S. Library of Congress, in September 1985, an earthquake measuring 8.1 on the Richter scale and centered near Acapulco killed more than 4,000 people in Mexico City, more than 186 miles away. It was the largest in the Baja California and Southern California area since 1992, the U.S. Geological Survey reported.
 
THE TEN MOST COSTLY WORLD EARTHQUAKES (1)
 
($ millions)
 
        Insured losses      
Ranked by insured losses when occurred
Date
Location
Overall losses when occurred
When occurred
In 2009 dollars (2)
Fatalities
Ranked by insured losses in 2009 dollars

 

1
Jan. 17, 1994
United States: California: Northridge, Los Angeles, San Fernando Valley, Ventura, Orange
$44,000
$15,300
$22,200
60
1
2
Jan. 17, 1995
Japan: Prefecture Hyogo, Kobe, Osaka, Kyoto
100,000
3,000
4,232
6,430
3
3
Dec. 26, 2004
Indonesia; Sri Lanka; India; Thailand; Bangladesh; Myanmar; Maldives; Malaysia
10,000
1,000
1,138
220,000
6
4
Oct. 17, 1989
United States: California: Loma Prieta, Santa Cruz, San Francisco, Oakland, Berkeley, Silicon Valley
10,000
960
1,660
70
4
5
Oct. 23-24,27, 2004
Japan: Honshu, Niigata, Ojiya, Tokyo, Nagaoka, Yamakoshi
28,000
760
865
45
8
6
Sep. 21, 1999
Taiwan: Nantou, Hsinchuang, Taichung, Puli, Touliu, Yun-lin, Chunghwa
14,000
750
968
2,400
7
7
Dec. 28, 1989
Australia: New South Wales, Newcastle, Sydney
1,200
670
1,162
15
5
8
Aug. 17, 1999
Turkey: Izmit, Istanbul, Gölcük, Kocaeli, Sakarya, Yalova
12,000
600
774
17,200
9
9
Sep. 1, 1923
Japan: Tokyo, Yokohama
2,800
590
7,418
142,800
2
10
Jul. 16, 2007
Japan: Niigata, Kashiwazaki, Nagaoka, Sanjo, Tsubame, Joetsu, Ojiya, Izumozaki, Kariwa
12,500
335
347
10
10
(1) Costliest earthquakes occurring from 1900 to 2009, based on insured losses when occurred.
(2) Adjusted to 2009 dollars by Munich Re.
 
Source: © 2010 Munich Re, Geo Risks Research, NatCatSERVICE.
 
For more information see the following links:
 
 

For more information about the Baja earthquake, contact the I.I.I. at 212-346-5500 or the IINC at 213-624-4462.

 

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

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