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10 Oct 16 18:55

Did you know that in 1996 over 45% of residential rental policies also included earthquake insurance? Today that number is a little over 5% (source). Last week I was fortunate enough to be a part of the California Earthquake Symposium hosted by Swiss Re. We had lots of creative ideas bouncing around, but as a former renter in California, that statistic stuck with me.

As an industry, insurers are extremely focused on the earthquake insurance take-up rate among homeowners, but renters make up a substantial portion of the population and our solutions should encourage this demographic to insure themselves too. Urban Californians are much more likely to be renters, compared with the national average: 42% in Los Angeles, 41% in San Francisco and 23% in San Jose (source). This is just the first piece of the puzzle; many of these renters are millennials, like me, with our own priorities and lifestyle choices.

Millennials tend to be renters for twice as long as our parents were (source). A lot of that has to do with complex market conditions, but we also don't stay in the same job or community as long as previous generations did. Gallup found that 21% of millennials changed jobs in the last year (source) and 51% of us have moved to a new city, state, or country (source). We're living in a shared economy, plus home ownership is expensive so we're more likely to rent rather than own a home. This data suggests we're less likely to put down roots and buy a home, at least for now.

Until renters make the jump to home ownership, the insurance industry should be there with an appealing product that resonates with the needs of renters - just as insurers innovate products for homeowners. The CEA provides easy to use online premium calculators but we need to go one-step further and understand why renters aren't buying polices with monthly premiums that costs less than a sandwich (source). Beyond closing the protection gap in the short term, we can teach my generation the positive habit of insuring yourself against earthquake loss so if (or maybe when) we do become homeowners, the purchase of earthquake insurance is not only familiar, but essential.



Category: Climate/natural disasters: Disaster risk, Earthquakes, Resilience

Location: California, United States


4 Comments

Andrew Castaldi - 10 Oct 2016, 8:52 p.m.

Thanks Sarah, very intersting and eye opening. I had a similar impression.

A few months ago during an innovation seminar we had a guest lecturer, Daniel Stillman, talk about innovation and bringing a product to market. One of the comments he made was that we tend to fall back into what we know rather than envision the unfamiliar. I grasped what he meant yet struggled with an insurance application. That is until I attended an earthquake roundtable discussion in CA.

During the earthquake consumer discussion one of the first comments made about consumer interest is that our exisiting products don’t consider all of the population at risk within the state. We don't know the consumer. The point was made that our current products target the same demographic that it did back in 1966. Middle class, forty year olds, predominately Caucasian, and with 4-5 family members who's dream is homeownership. People who would settle on one career and own a home investment until retirement.

Today that demographic has changed. More and more of the state's residents are Latino, Asian and a mixture of other demographics. Many of the state's residents are younger with mobile careers where home ownership is not right while others either can't afford or are not interested in home ownership. All of them, understandably, would not be interested in purchasing a mini-policy? Nevertheless this segment of the population still has a large earthquake risk. An earthquake risk that is not addressed by the coverage included in the typical homeowner's or renters insurance policy.

The insurance industry has not yet or is just beginning to address the needs of this growing demographic but we are not there yet. Many new products tend to miss the mark because we wrap these new ideas around something that looks like a familiar traditional insurance product. As such we market and appeal to those who are already served by the traditional product while ignoring those who can truly benefit from this type of new product. We should allow new ideas and products to flourish in their own design and market them to the under served growing demographic in California. A population who does not own homes but has other property, income, or additional expenses which are at risk from an earthquake.

Sarah Barrett - 11 Oct 2016, 6:52 p.m.

Thanks for sharing your comments, Andy. As you mentioned, the demographics in California are shifting and maybe the insurance industry is offering a product that might not represent the consumer's needs anymore. It's time to go back to the drawing board and imagine a multitude of new earthquake insurance products. When we do, it will be important to avoid effectively repacking the same product with a new wrapping – something that looks very similar to what exists now.
Perhaps parametric covers have a role to play in the future. We'll have to be mindful of the consumer's tendency to purchase the most affordable cover so no one is left under-insured, but this might be a simpler, faster, and more comprehendible system for the general population.
We should pause and reflect on the needs of the consumer in California and listen closely to what other experts are saying. Only then can we innovate a new and exciting product that's much more appealing to a wider audience.

John Novaria - 12 Oct 2016, 11:03 p.m.

I'm a renter in California, but not a Millennial! There's a perception that most renters here are Millennials, but I wonder if that's true. I find that the rest of the country can't get its head around the fact that so many of us rent, but with California's astronomical housing prices renting is becoming the norm, and in many respects, the preferable alternative.

Think of the property taxes we don't have to pay, or the costs of maintaining the property - all borne by the homeowner. So then, why not spend a few dollars a month to protect your belongings in an earthquake? I have a simple Renters Earthquake policy through State Farm, underwritten and backed by the CEA. There's some liability coverage in there as well. Not a bad deal.

Another interesting suggestion that came up in the Symposium was a Loss of Use coverage for renters who temporarily have no place to live - should their building or home be condemned.

I also think an important but overlooked issue is communication. Agents don't have the tools (or the confidence) to explain the value of earthquake insurance to their customers. From what I've heard, the industry is committed to improving this.

Sarah Barrett - 13 Oct 2016, 8:01 p.m.

Great points, John. I focused on millennial renters based on the generational differences: younger generations tend to be more mobile and lack interest in homeownership or a different type of alternative policy – say, one that spans the life of a mortgage. It's true that renters exist across all age groups. The data I found from the NMHC showed about 41% of renters nationwide are ages 30-64, while 51% are under 30. Alternatively, when you look at the ages of homeowners, only about 4% are under 30. If you wanted to learn more, location, age and rent data are accessible through the census PUMS data (source: http://www.census.gov/programs surveys/acs/data/pums.html).
Even as a renter, there it's important to protect the investment in having a place to live and your personal property. This is especially true in regions of tough rental markets (like San Francisco, among others!). The loss of use coverage should be especially important to market to renters. If we improve the gateways to the consumer (real estate agents, insurance agents, etc.) perhaps the knowledge of helpful coverage like this will help to close the protection gap!


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