Very few homeowners have earthquake insurance
— -- Cary Mann knows a major earthquake in Southern California could be catastrophic. But Mann doesn't carry earthquake insurance on either his Cathedral City home about 115 miles east of Los Angeles or on the hair salon he co-owns there.
"None of my family has ever had it," he said. "They've always said that if there was ever going to be a 'Big One,' the damage would be so massive that the insurance would never be able to pay out to everyone."
Many in the state feel the same way. According to the Insurance Information Network of California, fewer than 12% of the state's homeowners had earthquake insurance last year, and fewer than 10% of businesses had the coverage.
Conventional home and business insurance coverage does not cover the damage caused by ground-shaking in an earthquake, said Glenn Pomeroy, CEO of the California Earthquake Authority, a non-profit, whose mission is to provide affordable earthquake insurance in California. Add in the California homeowners without any insurance coverage at all, he said, and the percentage drops even further.
The low numbers stand in contrast to the potential earthquake threat, which will be highlighted Thursday in the fourth annual Great California ShakeOut, a statewide event to highlight the need to prepare for major earthquakes and practice how to respond when they happen. ShakeOut organizers say they expect more than 8 million to participate.
A 2007 study by Risk Management Solutions looked at the potential costs of a replay of the last major quake in Southern California — the 7.9-magnitude Fort Tejon quake, which hit near Bakersfield in 1857. It found a repeat of that quake would cause $150 billion in damage to homes, businesses and industries — more than the damage cost from Hurricane Katrina— with only about $15 billion to $25 billion covered by insurance.
Earthquake insurance is even more of an afterthought away from the Pacific Coast, but the magnitude-5.8 earthquake in Virginia on Aug. 23 showed that the rest of the country isn't immune from earthquakes. According to the American Insurance Association, about 90% of the U.S. population lives in areas that are seismically active.
Louisa, Va., resident Rick Waugh said his home developed cracks in its foundation and along door and window frames during the unusual quake. He estimates the damage to his home at up to $40,000 — and insurance isn't covering it.
"We didn't even know there was an earthquake policy available for Virginia," he said.
The median price for earthquake coverage in California is between $800 and $825 a year, said Insurance Information Network spokesman Pete Moraga. The earthquake authority offers a standard deductible of 15% of the insured value of the home, or a more expensive 10% deductible. A homeowner with an insured value of $200,000, for example, would pay a $30,000 deductible before insurance kicked in if the policyholder took the standard deductible.
John Bratton, a professor of insurance and risk management at the University of Central Arkansas, who has earthquake insurance on his home, said even in his state, the New Madrid fault system provides the potential for a significant earthquake.
"I remember thinking when I bought earthquake insurance the first time that if I put an amount equal to the earthquake premium away each year it would take 2,000 years to save enough to replace my home if it were destroyed," he said.
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