Frequent Natural Disaster Raise Homeowner’s Risks

According to the Natural Disaster Housing Risk Report about 8% of the 131 million housing units in the U.S. are at risk from natural disasters. Out of the over 3,000 counties analyzed, 12% or 373 were categorized as being at very high risk of suffering from natural disasters. Assessment was done on the basis of risk data for earthquakes, hurricanes and tornadoes and 5 risk categories were created. These are: very high risk, high risk, medium risk, low risk, and very low risk.
It is estimated that the annual cost of insured claims from natural disasters has increased from $5 billion in the 1970s to in excess of $40 billion in 2010. That is an 800% increase. While the sharp rise in home prices accounts for part of the rise, the volume of catastrophic events is a significant factor in the rise. This is something that many insurers are now turning their attention to and California is a case in point.
The California Situation
In the last month 2 earthquakes hit southern California. One measured 4.6 on the Richter scale. There’s nothing unusual about this. The U.S. Geological Survey says there are 10,000 quakes ever year but most are too mild to be felt. Those recording over 4.0 account for only 0.2% of them. Luckily, the recent seismic activity caused only minimal damage, but the next time could be worse – much worse. According to FEMA, no part of the U.S. is safe from quakes and some regions are more vulnerable than others. This is something that California residents know only too well. It is this increasing awareness, both in California and other parts of the country, that is leading to an increase in the sales of earthquake insurance policies.
What Kind of Coverage?
There are 2 options when it comes to earthquake insurance – an endorsement or a separate policy.  While endorsements are typically less expensive than a separate policy, there are usually many exclusions and higher deductibles. When taking out earthquake insurance what is important is the quality of the policy and the amount of coverage, not whether it is an endorsement of separate policy.
In California, the California Earthquake Authority (CEA) is the major player in the earthquake insurance market with member companies having 850,000 policies in force which amounts to 70% of the total number of quake insurance policies. Under state law, a separate earthquake policy is required to be offered when homeowner’s insurance is being sold. According to the CEA, while major earthquakes that cause significant damage may not be all that frequent, the benefits of earthquake insurance outweigh the expense. Typically, quake insurance provides for the replacement cost of a home subject to a 10% to 15% deductible.
Surprisingly, while the number of quake insurance policies being sold for homes is growing, business owners seem to feel that the risk is not significant. In California, fewer than 10% of commercial insurance policies include earthquake coverage. The risk is the same for both homes and businesses and with the growing awareness of the need for proper coverage, it is expected that the number of quake insurance policies sold to businesses will increase in the future.
How much damage could a major seismic event in a highly populated urban area cause? According to FEMA it could be up to $200 billion.
If you have questions about your earthquake insurance policy or any questions about insurance in general, call Insurance by Allied Brokers at 650-328-1000 or visit our website at


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