Earthquake Policyholders Few Despite Earthquake Risk – Insurance News

North Bay property owners may rethink their insurance coverage in the wake of a 7.0 earthquake off the coast of Humboldt County Thursday morning. Despite experiencing 90% of the nation's earthquakes, only 10% of Californians have earthquake insurance, according to the Federal Emergency Management Agency. “I think a lot of people have given up on earthquake insurance because of the cost of home insurance,” said Amy Bach, executive director of United Policyholders, referring to a yearlong bout with insurers not renewing and rising rates for policyholders in California.

The insurance crisis, started by State Farm, the state's largest carrier, which dropped 72,000 policies in March, has prompted a statewide effort to create a “sustainability insurance strategy” that the California Department of Insurance aims to finish by next year. The plan includes catastrophe rate modeling that bases the insurance price on future predictions rather than past records.

Expenses don't stop with the cost of wildfire and liability coverage for homes.

The state-certified agency that provides the majority of earthquake insurance in the state is the California Earthquake Commission. Insurance stakeholders assert that the agency, which has a cost calculator on its website, has raised its rates across the board and “paused advertising” to reduce its own costs.

“It's still difficult to make a purchase because the deductible is so high. It's an individual decision that people have to make depending on risk factors,” Bach said, adding that one example of this is living on a slope. “It's the same problem we have with flood (coverage).”

The consumer advocate noted that homeowners may have been calling immediately to inquire about earthquake coverage.

“Sure, it happens all the time,” she said. “It is too early to say whether yesterday’s earthquake will result in more Californians wanting to purchase residential earthquake insurance,” CEA spokeswoman Charlotte Fadipe said in an email.

“We also hope that yesterday’s earthquake will prompt people to seriously consider taking steps to strengthen their homes against earthquake damage,” she added.

Once a homeowner decides to use additional coverage separate from homeowners' policies, they may experience sticker shock, as the policy costs an average of $740 per year. Standard policies for homeowners and renters do not include earthquake coverage.

Insurance coverage may depend on need, availability and affordability, given different homeowners' circumstances.

The latest version of the USGS earthquake hazard model, released in January, shows a “chance of greater shaking” from earthquakes in California than previous models, the agency said.

“They get insurance if the house is leveled,” said Rohnert Park Mayor Susan Hollingsworth Adams, who is also director of operations for Hollingsworth Insurance Services in Rohnert Park. Wholesale insurance covers policies that are not typically available through standard policies such as small employer groups and specialty coverages (perils).

The agency, where Adams' brother Ron Hollingsworth also works, provides earthquake coverage through GeoVera of Fairfield and not through the California Earthquake Commission.

“If you have a $1 million home and an $800,000 mortgage, you may or may not want to pay $4,500 a year to protect the $20,000 in equity. That could be factored into your deductible,” Hollingsworth said. “I'll tell you, earthquake coverage is the first thing to do (on a household budget).”

There are many factors that go into rating insurance, including earthquake coverage policies. One such policy that Hollingsworth wrote up at GeoVera includes an East Bay home with $616,000 coverage with a 20% deductible for $827 a year.

In Sonoma County, a policy for a two-bedroom, 1,172-square-foot townhouse in Oakmont under GeoVera costs $755 for $481,000 in coverage.

Lisa Orloff, CEO of the Rohnert Park Chamber of Commerce, has worked for State Farm for decades.

She and her husband own a $1.3 million home in Rohnert Park, which costs $3,558 a year to insure with a 15% deductible through the CEA, though Orloff's insurance coverage wouldn't be typical of the average homeowner. “We even got an umbrella (personal) policy,” she said, referring to PUP policies that enhance liability coverage on property. She also pointed out the risks of lawsuits. Orlova agrees with Hollingsworth's assessment. “I've always thought, if you're willing, but you don't have enough equity in your house, you don't need it. You just walk away,” she said. “This might be the way to go.”

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