Southern Californians found themselves earlier this summer dealing with some of the largest earthquakes and aftershocks to hit the area in 20 years. Although it wasn't a devastating blow, it did serve as a reminder about earthquake insurance and whether it's cost, high deductibles and exclusions make it the best route to go to protect your home or business.
In the days following that June earthquake that struck the southern desert, state Insurance Commissioner Ricardo Lara was among state and local officials visiting the Kerr McGee Center in Ridgecrest, where an earthquake assistance center was set up.
The community hub offered everything from meals to legal information for those affected by a 6.4 magnitude quake on July 4, which was followed by a 7.1 magnitude the next day.
In the aftermath, which included nerve-shattering aftershocks, questions and confusion abound particularly on the subject of insurance, with many believing inaccurately, Lara would later emphasize — that a moratorium had been placed on all new earthquake policies.
"While we have Californians attention, insurers should not create barriers to homeowners or renters who want to protect their assets from earthquakes," stated Lara, who promised to send notices to insurers reiterating that the standard 15-day waiting period for coverage after a seismic event in no way means they should decline to write new policies.
And there is plenty of interest. Glenn Pomeroy, CEO of the California Earthquake Authority, reported traffic to the not-for-profit’s website had increased tenfold since the earthquakes.
Earthquakes are specifically excluded from a standard homeowner's policy, Pomeroy says.
Why earthquake coverage is not standard on home insurance
Created by the state legislature in 1996 due to the high risk of quakes in California, the CEA offers earthquake insurance through about two dozen participating insurance companies. The agency also has a free cost estimator tool on its website along with a county-by-county information on risk and resources for quake-proofing homes. According to the cost calculator, earthquake coverage for a two-story, frame home valued at $500,000 and located in Los Angeles County would cost about $555 a year with a 15 percent deductible, not including any loss of use or personal property coverage.
Still, the vast majority of California residents — 87 percent statewide, according to the California Department of Insurance — don't opt for earthquake coverage. The number rises to only 20 percent in Los Angeles and Orange counties.
So, what gives?
The answer most often lies in the deductibles, says Consumer Action, a San Francisco-based education and advocacy nonprofit founded in 1971. Simply put, combine modern building codes with the fact that you would have to suffer catastrophic home damage for a policy to kick in, and the odds are probably in your favor.
"Even on the West Coast, earthquake insurance is not for everyone," says Consumer Action spokeswoman Linda Sherry. "It can be prohibitively expensive and come with large deductibles."
High cost, large deductibles put coverage out of reach
For example: If a $500,000 home with a replacement value of $300,000 was struck by a quake, you'd have to cough up $45,000 to meet a 15 percent deductible. That's a lot of earthquake damage before the policy would help. Throw in the fact that many California residents have little if any equity on their homes after the housing bust, and frankly speaking, it would be more tempting to walk away from a mortgage if such a calamity occurred.
Also, some homes are safer than others.
"Homes on bedrock are considered pretty safe from damage," Sherry says. "There is a USGS bedrock map that consumers can search to see if their property is on bedrock. It might be a better idea for some homeowners to 'tie down' their foundations and do other updates to make their homes less likely to suffer damage."
The July 4-5 quakes tipped buildings off their foundations but caused no fatalities. Gas leaks, fires and the destruction of several mobile homes were reported, with other modest homes shifting on their foundations. Some of the homes destroyed were owned outright, their fixed-income owners left with few options.
In such a case, 15 percent deductible on a $30,000 replacement cost might make more fiscal sense.
Ultimately, whether to opt for earthquake coverage is a case-by-case and individual budget decision, Sherry says.
Rather than spend money on extra insurance, some homeowners invest it in a preventative approach — reinforcement bracing and securing homes to foundations.
A "brace-and-bolt" program administered by the California Earthquake Authority has thus far distributed grants of up to $3,000 to retrofit more than 5,000 high-risk houses built before 1979.
"After the Napa earthquake, I saw quite a few houses that slid off their foundation," says California Earthquake Authority Chief Mitigation Officer Janiele Maffei. "A brace-and-bolt retrofit beforehand could have made the difference."
A retrofit typically costs $3,000 to $7,000, according to the CEA. While it's a lot of money for some, it's far less than rebuilding a house that's fallen off its foundation.
People can’t be shaken to death by an earthquake. Rather, most of the hazards to people come from man-made structures themselves. These include flooding from dam ruptures and fires started by broken gas and power lines or tipped over stoves.
According to the Federal Emergency Management Agency, most earthquake-related injuries result from collapsing walls, flying glass and falling objects. A home's contents — such as tall, heavy objects and appliances — can be as or more dangerous than the structure itself when it comes to earthquakes.
FEMA guidelines recommend securing these items with nylon straps or closed hooks, moving them away from beds and seating and making sure gas appliances have flexible connectors to prevent fires.