Earthquake Rattles California - Reminder of the Risk of a Catastrophic Earthquake in U.S.

Very Few Americans Purchase Earthquake Coverage; Even in California Only 12 Percent of Residents are Covered, Says I.I.I.

INSURANCE INFORMATION INSTITUTE
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NEW YORK, July 30, 2008 -The 5.4 magnitude earthquake that shook Southern California provides a reminder of the very real risk of a severe earthquake striking the United States and the need to be prepared for disasters of all kinds, according to the Insurance Information Institute (I.I.I.).

About 5,000 quakes strike the U.S. each year. Since 1900, earthquakes have occurred in 39 states and have caused damage in all 50. Already in 2008, earthquakes have struck states such as Illinois and Nevada.

California remains the state most at risk of a major earthquake. A huge quake is far more likely in Southern California than in Northern California over the next 30 years, according to an April 2008 study released by experts from the U.S. Geological Survey, USC's Southern California Earthquake Center and the California Geological Survey. Their report also concluded that California is virtually certain to be hit by a major earthquake by 2028. The researchers found that the chance of a 6.7 magnitude temblor, equal to the 1994 Northridge, California, quake, is 97 percent in Southern California and 93 percent in Northern California. The likelihood of a 7.5 quake, which is 16 times more intense than a 6.7 quake, is 37 percent in Southern California and 15 percent in Northern California. The study used new information about prehistoric earthquakes, locations of faults and their slip rates, and satellite data of the movement of the Earth's crust to calculate the likelihood of earthquakes in the state.

The 1994 Northridge earthquake and the 1989 earthquake that struck the Oakland-San Francisco area are the two most costly earthquake events in U.S. history, as defined by insured losses. In 2007 dollars, the former caused about $20 billion in insured losses while the latter resulted in insured losses totaling almost $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.

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, 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.

Unlike flood insurance, earthquake coverage is available from private insurance companies rather than from the government. In California, homeowners can also get coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization.

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 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.

Unlike other disasters such as hurricanes, there are no seasons or warnings for earthquakes. They can happen almost anywhere at anytime.

The I.I.I. suggests 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.

For more information on preparing for a disaster, go to the I.I.I.'s Disaster Insurance Information Web site.

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

For more information on protecting your home from an earthquake, go to the earthquake section of the IBHS Web site, DisasterSafety.org.

For more information on California earthquakes and insurance, go to the Insurance Information Network of California.

For a related video, go to Earthquakes. Reporters who would like a DVC Pro or Beta hard copy of the b-roll footage, please contact: Susan Stolov at 301-728-1978 or SusanStolov@WashingtonIndependentProductions.com .

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