The 6.0 magnitude earthquake that struck the San Francisco Bay area early Sunday is estimated to have caused $1 billion in economic losses, according to the U.S. Geological Survey.
Some homeowners who suffered damage are in for a further shock when they learn they have to pay for their rebuilding costs out of their own pockets: Only about 12 percent of California homeowners have earthquake insurance coverage. In areas hardest hit by Sunday’s quake, such as Napa, fewer than 6 percent of homeowners have earthquake coverage, according to the most recent data from the California Earthquake Authority.
The percentage of homeowners who have purchased earthquake insurance has declined over the years, both in California and across the nation. Data from the Insurance Information Institute show that only seven percent of homeowners nationwide have earthquake insurance, down from 10 percent last year. In the West, 10 percent of homeowners have the coverage, a drop from 22 percent last year.
In California, 30 percent of homeowners had earthquake insurance after the 1994 Northridge earthquake killed several dozen people and caused about $44 billion in damage. The disaster taught many people the value of earthquake insurance, said Robert P. Hartwig, president of the Insurance Information Institute.
But 20 years later, “people decided to roll the dice and not to buy the coverage,” Hartwig said.
Earthquake damage caused by fire or water is usually covered by the standard homeowner’s or renter’s policy. But earthquake coverage related to “shake damage” needs to be purchased separately, and there is usually a 15 percent deductible.
The cost for such coverage also varies widely depending on the estimated risk of the home’s location. In the Napa area, Hartwig said, an earthquake policy may cost the owner of a million dollar house about $1,500 a year in premiums.
“The policies are expensive and the deductibles are high, thus a home has to have fairly catastrophic losses before the insurance kicks in,” Mary Comerio, professor of architecture at the University of California, Berkeley, told The Washington Post in an e-mail. “And, they don’t come around every year like hurricanes, so people tend to put off the expense of either insurance or earthquake retrofits.”
Hartwig said he expects to see a surge in earthquake policies soon, since “nothing sells earthquake insurance like an earthquake.”
However, people might still be reluctant to purchase earthquake insurance because of the high deductibles, said Howard Kunreuther, co-director of the Wharton School’s Risk Management and Decision Processes Center at University of Pennsylvania.
“If you have a $200,000 house, you’ll have to pay for the first $30,000 out of your own pocket before getting any compensation from the insurance,” Kunreuther said. “And people sometimes feel like they won’t have that much damage from an earthquake.”
In addition, he said, many homeowners without earthquake insurance coverage sometimes will still get relief from their homeowner’s policy if the house is damaged by fire or water, which discourages people from buying the earthquake coverage.
Meanwhile, the government has upped its assessment of the risk of a sizable shake.
Last month, the U.S. Geological Survey updated its seismic hazard map (PDF) for the first time since 2008, and it showed an increased earthquake risk for almost half the country. Forty-two states have a reasonable chance of experiencing damaging ground shaking from an earthquake in 50 years, and some states were estimated to have the potential for larger and more damaging quakes than considered in previous maps.
While it’s still too soon to assess the extent of damage from the Sunday earthquake and its aftershocks, Hartwig said in a statement, “the temblor is a reminder that those living in earthquake prone areas of the country need to have proper coverage.”